How to trade Forex

Example for Buying (Going Long)

Let’s say you deposited $5000 in your account. You entered the market when the price for EURUSD is 1.11000. You buy one lot (100,000 units) at 1% margin (100:1 leverage). We set aside 1,100 USD in your account to open this position. With leverage, your position is now worth 110,000 USD while trading. Meanwhile, you have 3,900$ free margin left in your account. As you predicted, the price increased and EURUSD is now 1.12000. You close the position, making $1000 profit. Your profit is immediately reflected to your account balance. You get back your initial deposit as well. You now have 6,000$. So, the next time you open a position, you can actually afford more lots! If you kept the position open overnight, you will pay and earn interest for both currencies as a result. Because you borrowed EUR and lent USD. This is called Swap Fee.

Example for Selling (Going Short)

You have 4,000 USD in your account. You opened a short position with one lot (100,000 units) at 1% margin (100:1 leverage). Currently EURUSD is at 1.2000. So, we set aside 1,200 USD in your account to open this position. With leverage, your position is now worth 120,000 USD. As you predicted, the price decreased and EURUSD is now 1.18000. You close the position and make $2000 profit. Your profit is immediately reflected to your balance. You get back your initial deposit of 1,200 USD as well. Now you have $6,000. If you kept the position open overnight, you will pay and earn interest for both currencies as a result.

When should you buy/sell?

CFD markets such as Forex are always volatile and unpredictable. There is no clear ‘winning formula’. That being said, there is of course a fundamental principle behind all this. You go long (in other words, execute a buy order) if you think the base currency will gain value as opposed to the quote currency: You believe the price will keep increasing, so you go long. You go short (or execute a sell order) if you think the base currency will lose value against the quote currency. You believe the price for the currency pair will keep losing, so you go short. Experienced traders develop their own systems over time by studying the market and using analytics tools.

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