In our last lesson we continued our forex trading course by learning about the bid ask spread. Now that we have some of the terminology and basic logistics out of the way it is going to get a little exciting as we look at actually placing some forex trades.
At the end of our last lesson I gave the homework assignment of placing a trade which reflected an opinion that the Euro is going to strengthen against the US Dollar.
If you remember from our lesson on currency rate movements, if the rate for a particular currency pair is going up this means that the base currency in the pair is getting stronger and the counter currency in the pair is getting weaker. With this in mind, if we are seeking to place a trade which reflects the opinion that the Euro is going to strengthen against the US Dollar, then we want to place that trade so we benefit from an increase in the quote for the EUR/USD currency pair.
If you think of all currency pairs in terms of the base currency then you can use the same rationale to trade the forex market as you would any other market. If my analysis tells me that the base currency should strengthen against the counter currency, this means that I am expecting the quote for the currency pair to increase, which means I want to buy to enter the position.
Conversely, if I my analysis tells me that the base currency should weaken against the counter currency then this means I am expecting the quote for the currency pair to decrease, which means I want to sell to enter the position.
With this in mind we should now know that to execute a trade which reflects the opinion that the Euro is going to strengthen against the US Dollar, we are going to buy to enter the position.
Let’s go ahead and login to our real time demo trading accounts and do just that. If you have not registered for a free demo trading account yet then I encourage you to pause this video and click the free demo registration link directly above this video if you are watching on InformedTrades.com or to the right of this video are watching on Youtube so you can get a free demo and follow along as well.
Luckily, most forex trading platforms including this one make it very easy to execute a trade once logged in. There are several ways to do this on this particular platform but the easiest in my opinion is to simply left click on the buy rate for the EUR/USD currency pair in the dealing rates window, which will bring up a market order window already filled out with everything you need to enter the trade. Once that is up simply click ok and you have executed your first real time virtual currency trade!
As noted above we will now benefit if the quote for the EUR/USD increases which would indicate that the Euro has strengthened against the US Dollar.
If we were expecting the Euro to weaken against the US Dollar this would have meant that we were expecting the rate to decrease so we would have sold to enter the position. The key thing to remember here is that if you are expecting the base currency in any currency pair to strengthen then buy to enter. If you are expecting the base currency in any currency to weaken then sell to enter.
For tonight’s homework assignment establish a fake or real opinion on what you think is going to happen with a particular currency pair and place some trades which reflect that opinion. If you would like to list your trades in the comments section below we would love to see them.
That’s our lesson for today. In tomorrow’s lesson we are going to be covering something which is known as a PIP as well as the different contract sizes in the forex market so we hope to see you in that lesson.
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