You can start trading currency in the foreign exchange market by making a small deposit. In return, your broker will top up your account with the amount you need to make the trade. Leverage, or using the extra money that is available in the foreign exchange market, is an excellent way to increase your profit. However, you should be aware that trading with more than the required amount of money increases your risk of losing money. Before you make a single trade, consider the following things:
Leverage
Forex traders are familiar with leverage, a strategy that lets you borrow money and use it to make bigger currency transactions. Leverage is a way to use borrowed money to make bigger profits from a single transaction. Because currency prices tend to fluctuate only 1% intraday, a small profit from one trade can turn into large profits if you use leverage. Typically, you borrow money from a forex broker to use leverage in your trading.
Spreads
One of the most important aspects of forex trading is spread. A spread is the difference between the bid and ask prices. Spreads fluctuate based on the market’s activity. During periods of great fear, more market participants will withdraw from the market, which can cause the spread to widen significantly. The following are a few things to consider when managing spreads:
Options
FX options, also known as foreign exchange options, give traders the right to purchase or sell a currency pair at a set price and date. Options are similar to futures and forward trading, with the main difference being that you must exercise your option before its expiration date. You can purchase call options or put options, and these options are both cash-settled in US dollars. However, FX options are not available through CMC Markets.
Strategies
There are different kinds of strategies in forex trading. You can use a robot or advisor to trade. However, it’s better to choose a strategy you understand and can put to practice. Before you invest your money, you should be sure you feel confident enough to trade in the strategy you choose. Simpler strategies are easier to study and put into practice. Below are some examples of simple strategies:
Currency pairs
Currency pairs are used in foreign exchange trading. A currency pair has two currencies that have the same purchasing power. The currency pair is made up of two different currencies: the base currency and the quote currency. Each currency is assigned a code by the Worldwide Organization for Standardization (ISO) that is three letters long. The US dollar, for example, has an ISO code of USD. The bid price is the price at which the forex broker will purchase the base currency, while the ask price is the price at which the trader will sell it.
Types of accounts
There are two basic types of accounts: micro and full accounts. Micro accounts are open to anyone with a small initial deposit, but they do not have full trading capabilities. Micro accounts have a low leverage limit of less than 0.1 lots, and are not typically associated with broker benefits. Full and VIP accounts are available for seasoned traders and investors, but they usually require the highest initial deposits. VIP accounts also may include additional analytics, a personal advisor, and the tightest dealing spreads. Traders with professional accounts typically have to prove they have sufficient experience to be eligible for their accounts.
