Forex trading entails betting that one currency will appreciate against another, typically by buying and then selling back the pair you originally paid for at a higher price once its value has increased – this process is known as long positions or shorting them with the hope that its value declines and vice versa – also known as short positions.
Though traders utilize numerous strategies, the two most frequently employed by traders tend to be either fundamental or technical in nature. Fundamental analysis looks at what factors drive currency pair’s price movement while technical analysis uses chart analysis to predict where a pair may move next.
Considerations when creating a successful trading strategy include how much time and resources are dedicated to researching markets and monitoring active positions, along with your personal style and financial situation. Furthermore, your trading plan should incorporate risk mitigation techniques that minimize losses.
As for the mechanics of forex trading, orders to buy or sell are placed with brokers using trading platforms that enable real-time pricing information and charts of various currency pairs. Trades are sized in lots – one lot being equal to 100,000 of the base currency (e.g. USD/CAD represents US appreciation against Canadian dollars). A trade is considered profitable when its market price reaches above its ask price for long trades or below its bid price if short. Pips measure these movements of change between bid and ask prices of currency pairs.
An effective forex trading strategy should take into account both current market conditions and additional factors, including support and resistance levels. Since currency pairs tend to trade together, their prices will often correlate closely, making it easier to identify an entry point into the market if one pair seems more likely than another pair to rise relative to each other.
At City Index, we offer a diverse range of forex pairs for trading – majors like EUR/USD, GBP/USD and USD/CHF as well as crosses and exotic currency pairs that tend to be less liquid but still provide plenty of trading opportunities. You can view all available pairs on our pricing page which also shows their spreads and liquidity; remembering to maintain adequate funds in your account for open positions (known as maintaining margin level) prior to trading as this can be monitored on our account management page.