In this lesson we’ll show you an example of Forex trading, which will allow you to see how everything we have covered so far is applied.
First of all, if you don’t have time to read and prefer to watch a video tutorial, listen to it and review it as often as you like, stopping and resuming when you want to, then below is a video that is right up your alley.
Don’t forget to subscribe to the channel, so we can measure the usefulness of these video tutorials on Forex trading.
Before proceeding with the example, choose a trading platform with which to mimic our operations step-by-step. By doing so, even if you have never traded on Forex, you can learn by repeating everything we do in the example.
You could, for example, use a platform we often use 24option (no deposit required) or select one from our lesson on the best trading platforms.
To proceed, follow these steps:
- Choose the platform
- Sign up and choose “demo mode”
- Access the platform using login data (email and password) provided during registration
Done? Great, let’s proceed.
Trading on Forex means trading on a currency pair, which may also be referred to as: currency cross, currency exchange, etc. The substance however doesn’t change.
Suppose you want to trade the euro dollar exchange rate with the 24option trading platform.
First, we’ll need to select the asset on which to trade, which in this case is represented by the euro dollar pair, the so-called EUR/USD.
To choose EUR/USD, first select the “Forex” or “Currencies” category. By doing so, a set of sub-categories will open, including Major, Minor, Crypto, and Exotic.
Select “Major” and proceed.
In doing so, the list of all major currency pairs on which you can trade appears on the right side of the platform. Among these is the Euro Dollar, the most traded pair on the Forex market (second position in the figure below).
When selecting a currency pair, for example the EUR/USD, by clicking on its name, its chart is displayed in real time at the bottom of the platform.
You can see it in the image below. We clicked on the “EUR/USD” line and the chart of euro dollar prices in real time appeared automatically.
The euro dollar chart in real time, as well as that of any other currency pair, is very important when trading on Forex. In fact, before opening a position, consideration must be given to price trends. The graph is the best tool there is.
You can easily change the graph display by choosing between bar, line, or other modes. Furthermore, you can change the time frame, or the space between a point in the graph and the next.
In addition to giving it a brief “look”, technical analysis tools can be used. We’ll talk about technical analysis in the Forex later. For now, it suffices to say that by clicking on the “indicators” button, numerous indicators can be applied quickly and easily. Furthermore, it’s also possible to create freehand graphs, apply Fibonacci retracement lines, enlarge the full screen graph, and so on.
Opening of the trading position
To invest up or down on a Forex currency pair you need to open a trading position.
To open a trading position, click on “Buy” or “Sell”:
- Buy: open a bullish position, that is to say, obtain profits proportional to the price increase
- Sell: open a bearish position, that is to say, obtain profits proportional to the downside of the price
Warning: when we say “sell”, in this case, it doesn’t mean selling something you previously purchased. It means opening a downward position. So you can also simply open a bearish position without having done anything prior.
For our example, we decide to open an upside position on EUR/USD. To do this, click on the “Buy” button on the same command line as the EUR/USD.
Setting order parameters
Once you click on “buy”, an overlay window opens up. This is the order window, in which you’ll set the various parameters for the trading order.
As you can see, you can enter the amount of euro on which to trade. In this case:
- 3000 represents the nominal capital, or the amount on which we are trading
- €100.52 (equal to $115.18 at that time) represents the required margin, or the amount that is used to open the position
By changing the amount of the nominal capital, the margin is also automatically updated.
In fact, the margin in this case is calculated based on a leverage of 1:30. This means that to move €30 you’ll need €1. Proportionally, €100 is needed to move €3,000. Leverage is typical of CFDs.
To actually open the position, click on “enter an order”.
However, before doing so, we advise everyone to always set a Stop Loss.
Stop Loss and Take Profit settings
Stop Loss: allows you to set a maximum loss level, which, if reached, triggers the automatic closing of the loss position. This serves to close losing positions and avoid further losses.
Take Profit: allows you to set a profit level, which, if reached, triggers the automatic closing of the position while it is in profit. This serves to “earn cash” and take advantage of profiting.
We’ll discuss these two orders better in the chapter on Forex orders.
These boxes can be ticked to set an automatic closure.
Once the position has been opened, you can monitor its progress on its chart in real time.
This allows you to always keep an eye on the price trend of the asset on which you are negotiating, which for our example is represented by the EUR/USD currency pair.
Furthermore, by using technical analysis graphic tools, you can easily view trend lines, moving averages, oscillators, bands, retracement lines, volumes, and everything else you might need to get a clearer picture of what is happening to the stock prices.
Similarly, the status of your account is always visible on the trading platform. On the platform we use it’s displayed at the bottom left and includes:
- Balance: represents the value of the account excluding profits and losses in progress
- Equity: represents the balance net of profits and losses, with the return of margins. It’s what the balance would be if all positions were closed.
- Available Margin: the immediately usable margin.
- Used margin: the margin used in currently open positions. If you have multiple open positions, it will add up the margins of the various open positions.
- Profit / Loss: profit and loss total of open positions. Here you can see right away if you are profiting or losing, whether you are doing well or not. If you only have one operation open, here you’ll have an instant idea of its progress.
Closing the position and final balance sheet
To close the position, click on the “CLOSE” button near the asset bar on which the position was opened.
Once the position is closed, you can return to viewing your account (as seen in the previous paragraph) to see your updated balance.
Go to the next lesson: a deep look at the Example of Forex Trading