Mr. X, our architect
To make you fully understand the process of trading on Forex, we will walk you through the practical example of Mr. X trading for the first time.
Mr. X is an architect who has been recently made aware of the trading business on the Forex market.
- Choosing a platform
The first step of trading Forex is to choose the platform, which lets you create an account and deposit cash for trading.
Mr. X, as a first step, choose theliquidity.com as a platform and deposit some USDs to get started with trading.
- Selecting a currency pair
Pick a currency pair from more than 60 currency pairs available. For example, (USD/GBP), (USD/AED), and so on. Understanding the price instability of currency pair at this spot helps manage your risk.
Mr. X, at this stage, would like to trade US dollars with British pounds; hence he has opted for (USD/GBP) currency pair.
The currency pairs are mainly divided into three categories
The ‘Majors’ currency pair always have the US dollar. For example, Euro/USD, JPY/USD and more. Majors are the most liquid currency pair.
The ‘Crosses’ currency pair has no USD. They are comparatively less liquid than the majors. Commonly includes Euro, GBP and JPY. Often termed as euro crosses, pound crosses, yen Crosses.
The third category of ‘Exotic’ currency pair has one major currency with the currency of an emerging economy, such as Brazil, Mexico, Turkey, etc. Since it is not heavily traded, the cost of trading in these currency pair would be higher and risky.
- Choose the type of FX trade
Pick one method of Forex trading from the three ways available, namely spread betting, CFD, and forex trading.
Since Mr. X is trading in USD/GBP currency pair, his stake will be in USD. Meaning any rise in the exchange rate GBP will be a loss to him and vice versa. He is using CFD trading.
- Buying and selling currencies
Know the recent exchange rate of the currency
Currency pair has a base currency on the left side and quote currency at the other. In Mr. X currency pair (USD/GBP), USD is the base currency, while GBP is the quote currency.
Buy a currency pair, if you think a base currency will strengthen against the quote currency. Mr. X believes that the exchange rate of USD will rise against GBP; therefore, he bought this pair.
Similarly, Sell the currency pair when you think the base currency will weaken against the quote currency. Mr. X will immediately sell his currency pair once he sees the falling exchange rates of USD due to various circumstances.
Moreover, you can set orders in the platform directing it to sell the currency after a specific rise or drop down in the exchange rate. Features of Adding orders, Stop Loss, Guaranteed Stop Loss, and limit order are available at the platform.