Forex Trading Basics
When trading currencies, the trade is always executed as a currency pair. One currency is bought and the other sold relative to the supply and demand of both currencies. For example, you buy Euros with U.S. Dollars anticipating an increase in the value of the Euro relative to the U.S. Dollar. If the Euro rises against the U.S. Dollar, you can close the trade with a potential gain. Yet, suppose the Euro falls relative to the U.S. Dollar, you will experience a loss. Self-traders should consider focusing their attention and become very familiar with one or two of the major currency pairs (EUR/USD, GBP/USD, USD/JPY, and USD/CHF).
Forex has many attractive features
- 24-Hour Trading – Sunday evening through Friday afternoon
- Low capital investment compared to the capital required to trade stocks.
- Extraordinary liquidity in the world’s largest financial market.
- Focus your trading on a few currency pairs instead of thousands of stocks.
- Trade long and short positions with no restrictions.
- Quick execution of trades within seconds
A Forex trade is comprised of these essentials:
- Currency Pair
- Number of Lots traded
- Trade direction – Long (buying) or Short (selling)
- Order type – Market or Entry order
- Money Management – Stop Loss order and Limit order
Forex trading is a speculative endeavor that requires proper training, education, discipline, confidence, risk management and money management skills. Developing a trading system matched to your trading style requires more than technical indicators, trends, and market analysis; it also requires mental and emotional discipline. Often, a trader’s emotions of greed and fear negatively influence trading results. Therefore, we suggest the following rules of trading:
- Have a trading plan focused on proper money and risk management techniques.
- Set a small profit target and become efficient at reaching your target.
- Use Stop Loss orders to protect your investment and minimize losses.**
- Open a demo account and paper trade before using real money.
- Keep a log of all your trades – good and bad. Analyze each trade and learn from it.
Become a student of the Forex market and the economic events that affect it. Those who have mastered a trading method and established the principles required to be a confident trader will enjoy the benefits of their discipline. At Compass FX, we want to assist each trader by providing an efficient trading platform, valuable market information, and effective strategies.
* The Forex market is an “off-exchange” market which may affect your trading outcome.
** With consideration of slippage, actual transaction costs may differ from attempted execution.
DISCLAIMER: Trading futures, options on futures and off-exchange Foreign Exchange market (FX, Forex) is very speculative in nature, involves considerable risk and is not suitable for all investors. Before participating in trading, you should carefully consider your investment objectives, level of experience and risk appetite. Investors should only use risk capital when trading because there is always the risk of substantial loss. Most importantly, do not invest money you cannot afford to lose. Any mention of past performance is not indicative of future results. Account access, trade executions and system response may be adversely affected by market conditions, quote delays, system performance and other factors.
Past results as represented in testimonials are not necessarily indicative of future results or success. Testimonials may not be representative of all reasonably comparable students. Trading involves significant risk of loss and may not be suitable for all investors.
RISK WARNING: Trading futures and foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your monetary objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your deposited funds and therefore you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent advisor if you have any doubts. Past returns are not indicative of future results.
Compass FX and its affiliates assume no responsibility for errors, inaccuracies or omissions in these materials. They do not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Compass FX and its affiliates shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This is not a solicitation to buy or sell currency or futures. Compass FX is compensated for its services through commissions and/or the spread between the bid/ask prices. All replies should be sent to firstname.lastname@example.org . Replies sent to email@example.com will be received by the Compass FX corporate email system and are subject to storage and review by someone other than the recipient.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.