Home Financial Trading Blog How does the trading with forex work?

How does the trading with forex work?

The difference between other financial markets and forex trading is that the foreign exchange market has neither a physical place nor a central exchange. In addition, they are able to give you 24/7 opening hours through a global network of companies, individuals and banks. This gives more trading opportunities as currency value are constantly moving up or down in comparison with each other.
City index helps you speculate in the future exchange rate either long or short (depending on whether you think the currency value will go up or down). Below you will find a review of how you deal with forex trading.

1. Decide which currency pair you wish to trade
You have over 65 currency pairs to choose from, but it is extremely important to choose the best trading opportunity that suits you best. With the help of City Index and basic research tools, you can find currency trading options that are right for you. Our recomendation is to really take the time to understand the price volatility associated with the currency pair in order to handle your risk.

forex trading - fx pair

2. Three ways to trade with forex.
You have to decide your type of the forex trading, bellow you will find the three different styles:

• CFD or Forex Trading – When it comes to forex trading, you buy a lot in the base unit. In the case of CFD, you buy a lot of base units EX: GBP / USD, then the bet is in pounds, but if you take USD / JPY, you are paying US dollars.
• City Index Spread Betting – you trade pounds per point movement

forex trading - fx pair

 

3. Do I wan to buy or sell?
Once you have made a market choice and know the current price, you proceed by opening an order ticket in the platform you chose to use. Each currency pair will have a base and a quoted currency. Base currency is the currency to the left of the currency pair and the opposite is on the right. Simply put, when you trade foreign currencies you should:

Sell – If you believe that the base currency will deteriorate in value against the quotation currency of your chosen currency pair, or on the contrary, the quotient currency will be strengthened against the base currency. With each increase in the price above your open level you will make a loss. At each point as the exchange rate falls, your profit will be increased.

Buy – If you believe that the currency pair’s base currency is strengthened against the quotation currency or that the quotient currency will deteriorate in comparison to the base currency. Your earnings will increase as each increase in the exchange rate increases. With each case in the price below your open level, you will make a loss.
Why do Spread FX pairs have two prices?
Spread – FX pair has two prices, the selling price (bid) and the purchase price (offer). The difference between the purchase price and the selling price is called the spread and is basically the cost of the trade.

forex trading - fx spreads
4. Order
What is an order? It is an automatic “point” that you decide when the prices (as you decide) reach a certain level that make you shop automatically. The stop and limit order feature is available to ensure that you block profits and minimize the risk when your respective profit or loss goals are achieved.

However, it is not necessary to understand and use risk management tools as stop-loss given the volatility of the currency markets.

What is a stop loss order? It is an instruction to close a trade at a price that is worse than the current market level. It used to minimize losses, you can choose between two different types: Guaranteed and Standard.

Standard – This means that if the stop loss order is triggered, the trade closes at the best available price. But keep in mind that the rice is that the closing price may differ from the order level if the market price slows.

Guaranteed – A guaranteed order guarantees that you close your trade at the level of loss that you have decided regardless of market failure.

Limited order – Then you close your trade at the price that is better than the current market level as well as lock in price targets.

forex trading - stop order and limited order

5. How do I keep track on my trades?
Once you have opened, your trading profit / loss will vary in line with the movement at the market price. You use your computer, tablet, or smartphone to track market prices, see your profit / loss in the past, and both open or close your “orders”.

6. How do I close my trades?
In principle, it is the opposite of the opening. For example: if you bought 3 CFD then you sell 3 CDF files to close. When you close, your profits and losses will be real and the result reflects in your cash balance.

We wish you a god luck and success with your forex trading!
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