Broker to Trading

This article will discuss the basics of Forex trading and provide links to books the trader can check out (some of which are arguably in the category of 'must read' Forex books), chosen by this site. Before starting to trade and after beginning trading, the trader can read books about the subject. Reading before starting to trade Forex means that the trader can have some knowledge already there to help understand the market and trading as well as something to apply to the market when they start to trade.

Forex trading consists of a number of possible techniques. The Forex market is open continuously during the week and the trader can apply a wide range of methods to trade it. Trading at its most basic consists of taking a position in the market based on analysis which suggests the direction the Forex pair being traded will move in. This analysis can be wrong no matter what it is based on, but it provides a rationale for entering, managing and exiting a trade. For example, does the trade continue to move in the desired direction when the trade has been entered or does it retrace against this direction (which happens in Forex trading). If it does retrace, how long should the trader stay with the trade and if it continues in the required direction when should the trader exit. Analysis and analytical tools can provide a basis for these decisions by providing pointers to entry, validation or the opposite for a trade and an exit point.

Forex analysis has two broad categories, fundamental and technical analysis. Fundamental analysis looks at data coming into the market and presents possible reactions of Forex pairs to this data. For example, if a Central Bank of one of the currencies of a Forex pair is altering its interest rate targets, how might this affect the direction the pair will move in.

Technical analysis on the other hand assumes all the data is in the market and accessible from the chart and its data, and regularities can be found to suggest how the market will move. For example, a pattern has formed in the past. This pattern by its nature will suggest direction, entry points, trade validation or invalidation and exit points. So the trader looks for signs of pattern formation.

Another example is based on technical indicators. Indicators apply rules based on past regularities and can provide signals based on how the indicator expects the market will move at a given time. There are many types of chart based analysis, including candlestick analysis, trading on divergences and multiple time frame analysis.

The trader may wish to combine both technical and fundamental analysis. There are some kinds of trades which are more purely technical and some which are more purely fundamental. For example news trading generally happens too fast for technical analysis and is too contingent on the immediate reaction to fundamental data, thus there is no regularity to trade on. Nonetheless there are broad regularities which can be used in news trading, such as a belief that a surprise news announcement will move the market thus allowing the trader to look for conditions which will enable such a reaction. The essence of trading is that regularities can be found, but they may not provide the actual outcome in practice so the trader may need to exercise their discretion (making Forex trading an art as well as a science) or use additional methods, such as crowd, social and copy trading or robots.

The trader at some stage may wish to automate their trading. They can do this by copy trading (automatically copying somebody else's trades into their own account) or by using a robot. A robot is a computer program which will trade on the trader's behalf. Robots allow the trader to choose what rules it will trade by. This can be done at various levels. For example the trader may choose a robot based on a description of what it does and/or its past performance (past performance does not guarantee future results). Or they may choose a robot based on its application of a set of rules the trader has been implementing. Or the trader may go a step further and design the robot themselves.

Robots can have different names on different online trading platforms. On MetaTrader 4 (MT4) and its successor MetaTrader 5 (MT5) they are called Expert Advisors (EAs). On cTrader they are called cBots. Robots can rapidly create losses, but they can also trade through market conditions where the trader might exit, but which work out in the end. The trading robot can also apply trades rapidly without tiring and trade at times the trader is not available (given that Forex is open through the week).

The trader may test out approaches they have learnt on a demo account initially, which can be opened at a broker. A demo account lets the trader trade without risking real money as it has virtual funds which are not real money and cannot be withdrawn (in essence it lets the trader simulate trading). A sign up form for a Plus500 demo is provided below. Plus500 offers 115+ technical indicators (so the trader can test out indicators from a technical indicator encyclopedia) and has fundamental data on the platform for each market, so the trader may see how the market reacts to data and how accurate or not projections of data can be. Plus500's platform is user friendly and can provide a basis for a trader to work out how to trade and then to trade on a live account (for which the minimum deposit is $100).