15 September 2015

Trading Forex: How to trade Forex

With a forex trade, you are buying one currency and simultaneously selling another currency, speculating on the future price fluctuations between the two currencies.

​​​​​​Currencies are valued against each other in pairs. For example, the US dollar against sterling would be written as USD/GBP, the dollar in this example is the base currency and the pound is the quote currency or counter currency. 


 

Only a handful of pairs make up the majority of trades in the marketplace; these are the most heavily followed currencies of the major economies which have sensible monetary pol​icy, a stable political situation and low inflation. The most commonly traded currencies in the marketplace are the euro, the US dollar, the pound sterling, and the yen (see graph). 


Trades take directional bets on currency price moves, going long or short depending on what they think the base currency will do in relation to the quote currency. 

FX trading can be reactive, looking at past price movements and reactions to economic events to determine a strategy, or it can be speculative, looking to future to try to anticipate likely price action. 

Most traders will use a combination of technical and fundamental analysis, looking at economic indicators such as GDP, retail sales, inflation and unemployment data, and adding technical analysis to try to identify repeatable patterns. Like any type of trading, FX trading also involves some sentiment and behavioural psychology, with investors’ hunches and intuition coming in to play. 

FX traders react extremely quickly to events which may move currency values - this is where stop loss and limit orders may be very useful and may allow them to set a floor under potential losses, and to take profits at the right time. ​

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The value of your investments can go down as well as up.
Losses can exceed deposits on margin products.
Please ensure you understand the risks.

Disclaimer: This material should be considered as a marketing communication under the Financial Conduct Authority's rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor is it subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Capital Markets UK Limited ("SCML") undertakes reasonable efforts to ensure that any information published in this communication is reliable. SCML makes no representation or warranty, or assumes no liability, for the accuracy or completeness of any information contained in in this communication.

SCML provides an execution only service and this communication does not take into account any particular recipient's investment objectives, special investment goals, financial situation, and special needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and SCML assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation.

Saxo Capital Markets UK Limited is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871

The value of your investments can go down as well as up.
Losses can exceed deposits on margin products. Please ensure you understand the risks.