The Fine Tests for the Online Trading

forex trading strategy

Then test the trading platform by opening a demo account. You will be able to place fictitious orders through this virtual account. Forex beginners are often confused by the apparent complexity of trading platforms. Feel free to train as long as possible while following step by step free training seminars delivered online by the various intermediaries. If you are satisfied with the service, you can open a real account. As a forex trading strategy this is important.

Use leverage with caution

When you open a real account at a Forex broker, your money is deposited in a “segregated” bank account opened with an independent bank. This deposit will be used to cover your losses if any. It is a kind of guarantee for your broker. In fact, the foreign exchange market has the particularity of offering a much greater leverage effect than in other markets.

  • In other words, you can open a position using a much higher amount than your initial deposit. This lever can go up to 400 times the bet. For example, a leverage of 100 means that, for 1,000 euros deposited, you invest 100,000 euros lent by your broker. As we can see, using such a multiplier, a 1% change in the exchange rate is a good way will produce a gain of 1,000 euros. The start bet is doubled very quickly. Otherwise, a variation of 1% in the wrong direction causes the total loss of your bet.

Theoretically, you can lose more than your initial deposit. But, in practice, brokers arrange to automatically close your position as soon as your meter reaches zero, thus avoiding asking for money after the fact. To avoid this scenario, we must use leverage with caution.

Check the spread and transaction fees

There is very little transaction cost on the currency market. In general, brokers are paid on the difference in price between the buying and selling prices they offer their customers. This spread is called the spread. The smaller it is, the more competitive the broker is.

Take the example of the euro/dollar, the most traded currency pair in the world. The broker platform displays at a given time a cash purchase price of 1.09867 for a selling price of 1.09887. It is said that the spread is two points, knowing that the unit of measure of the spread is the fourth decimal place after the decimal point in this example. For an investment of 100,000 euros, the spread therefore represents 20 dollars (109,887 – 109,867 = 20).

forex trading strategy

This relatively high quotation gap will not be suitable for investors who want to take advantage of small price variations in the context of intraday trading (initiated and settled during the same day). They should, therefore, refer to brokers offering a smaller spread, often less than one point on average. Note also that some brokers may charge commissions on small orders. Finally, when the position is not closed at the end of the day, brokers apply a deferral fee. The conditions of application of these rates are specified in the tariff brochures of the intermediaries.

Set up a “trading” strategy

Making money by regularly speculating on currencies is not easy. To achieve this, often after several years of perseverance, you must implement a trading strategy using the range of opening and closing orders placed by your broker. Before opening a position, you must first have set your profit target and the loss threshold that you are willing to bear.

Without a trading plan, you will be faced with the trader’s worst enemies: stress, fear and hope. Feel free to follow the free training provided by your broker: you will learn how to best place your buy and sell orders and take advantage of major trends in the currency market.

Written by