How does Forex Trading Work?

Forex Trading works by buying and selling of different currency pairs.  For example, a forex trader would sell USD (the base currency) and buy ZAR (the counter currency) with the hopes that the value of the ZAR increases.  When the value of the ZAR increases, then the trader can choose to sell the currency and either buy USD or any other currency the trader chooses.

Different market conditions, your personal goals and which currency pairs you trade are all going to affect your success in trading.  Before you are able to trade forex, you need to sign up with a forex broker as they are the way that you access the international forex market.  Each broker has their pros and cons, but each of the reputable brokers that we have featured on this site will be able to get you started with either webinar content or with an experienced trader to introduce you to some of the below concepts.

Following signing up with a broker, you will need to start studying strategy.

Main Strategies of Successful Forex Trading

1.  Above all, learn the language of trading.  Before you are able to learn the basics of strategies you will need to understand what a Pip is, what a pivot point is, and what a gap is.  These are just some examples of language used, but if as you read you will learn the meanings of this new terminology.

2.  Are you certain enough that you are making the right call, and that you are putting the right amount of money into the trade?  This all comes down to money and risk management and knowing where your currency reserves are.  A general rule is not to trade more than 2-3% of your capital in a single trade, and develop a trading plan.

3.  Have you, or the market, seen these market conditions before?  History always repeats itself.  You should always be taking notes on the success and failure of your trades so that you can use this analysis to help guide you in the future.  As an example, we have published a historical analysis of the EURUSD pair that shows this effect.

4.  You need a target for any trade – know your exit strategy.  Whatever strategy you are about to implement, you need to have a target value.  This helps remove the emotion from the trade as well, making it easier to act with a clear mind.

5.  When are you going to enter the trade?  Analyze your trade by using charts, or by reading the news and following the economic events of the day.  This is technical vs. fundamental analysis and each has their place.  Never rush your trades only to make a trade, but instead time them right, and use a strategy that works to your advantage.

This is a very high-level overview of how to trade forex on the international markets.  We have a full education section to get you started, but these are some core strategy questions and a collection of basic strategies that you could consider when looking for a currency pair to trade.