How to Trade in Forex Market? 6 Essential Forex Trading Steps for Everyone


Introduction To Trading Forex Market: The foreign exchange market is the largest volume market in the world. It is basically for trading the globally accepted currencies. The currencies are traded in pairs, which means the value of one is taken against another for trading purposes. The most famous trading pair is EUR/USD along with the USD/JPY, AUD/USD, USD/CHF and GBP/USD.

If you desire to trade in the Forex market and don’t know how to start then follow the steps listed below.

Steps For Trading in the Forex Market

The various steps for involved in trading forex are as follows:

1) Choose a Currency Pair

The primary step is to select the currency pair you wish to trade. There are about 65 currency pairs in the forex market form which one can pick or choose a trading opportunity.

Fundamental research instruments and City index tools can help you to choose the opportunities which suit you best for trading currency. One should take his own time to understand the extent of price volatility attached to the currency pair for managing the future risk.

 2) Decide The Type of Trade In The Forex Market

There are three possible ways for trading forex with the CFD or Forex trading or City Index Spread Betting. Each of these options has a different stake volume.

  1. In the spread betting trading option, one trade pounds per point depending on the movement.
  2. In CFD trading option one trades on the number or quantity of CFDs taking base currency as a whole unit (currency placed on the left side). For instance, if one trades GBP/ USD, the stake would be measured in Pounds, while in USD/ JPY, the stake would be calculated in greenbacks (US dollars).
  3. In Forex trading option one purchases lots as per the unit of the base currency (placed on the left side). For instance, if one trades GBP/USD the stake would be estimated in Pounds, while in case of USD/JPY the stake is calculated in US dollars (the minimum stake volume or size is 1000).

3) Decide To Sell or Buy

Once you have decided the market to trade in, you need to know the market price of the currency at which it is trading. It can be achieved by bringing up a ticket of trade in a particular platform. All prices in the forex market are marked by taking one currency against another. Each currency pair has a ‘quote’ currency and a ‘base’ currency. The base currency is the one placed on the left side of the pair, and the quote currency is placed on the right side. The two options with you while trading forex is:

Buy: If a trader expects that the base currency will rise against the quote currency, or the price of quote currency will decline against the base currency price, then he can choose to buy the respective currency pair.

Trader’s profit will surge in line with each rise in the exchange price. For each position, the exchange cost declines below the open level; the trader will incur a net loss.

Sell: If a trader expects that the price of the base currency will fall in value against the cost of quote currency, or the value of quote currency will increase against the base currency, he can choose to sell the respective pair.

Trader gains will surge in line with every position the exchange price falls. For each position the exchange cost rises above open level, the trader will incur a net loss.

The term spread and its significance:

The initial price is the sell amount, also known as the bid value, and the other price is the buy amount, also known as the offer value. The difference between the two amounts is termed as the spread, and it reflects the cost of the trade.

4) Adding Orders

An order refers to an instruction to trade automatically at a time in the future when the cost reaches a particular level pre-expected by the trader. One can stop, limit and utilise orders to ensure that traders lock in any gains and also minimise its risk when the specific loss or profit-risk targets are accomplished.

It is not compulsory, but one should be aware of risk management instruments, including stop-loss, to overcome the risk associated with particular trade in the forex market.

Stop-loss order: It is an instruction (for trade) to close out a deal at a cost worse than the present market level and, as the name reflects, it helps a trader to minimise losses. It is categorised into two parts first is, standard and second, guaranteed.

5) Observe and Close The Trade

Once open, the trade’s loss and profit will vary at this position with every move in the financial market price. One can trace the prices, check the unrealised loss or profit amount in real-time and can also attach the order to close the trade, open a particular position and add new trades from the app compatible with tablet and smartphone.

6) Closing Your Trade

When you are sure to close the trade, you need to adopt steps precisely opposite to the opening procedure. For instance, you purchased three CFDs to open deal; you would sell three CFDs to close it. With the closing of the trade, your aggregate loss and profit will be realised and at the same time reflecting your cash account balance.

The Bottom line – Trading Forex Market

The forex market is the largest volume market and hence, most famous among investors. You can start trading with a large number of available options. If you are a beginner, then try to build a strong financial foundation before trading. You can read blogs on on the forex trading education for beginners if required.