Becoming Forex Trader: How to Make First Trade
It is a tough time to be a Nigerian. It is either your take home is large enough to cover all expenses for a month or you have an economic shock-absorbers like additional income from forex, stocks or even fixed interest securities.
Of course, there are other investment income. At the extreme, people make and lose money gambling, game betting and cryptocurrency except that the latter has drawn negative attention from the Nigerian government.
For those who prefers forex trading, how do you make your first trade? If you have not read introduction to forex trading on this platform, you might need to go back for some details.
There are things you have to know before you make a trade. As new trader in the forex market, you’ll need to decide which kind of trade to make. Do you want to short or go long?
Making a long trade means that you are buying a currency with the expectation that its market value will increase. How do you make profit here? You make a profit on the difference between the purchase and sale price. It is that simple.
If you decide to make a short trade. It means you are sell a currency with the expectation that its value will decrease. Then, later you can buy back at a lower value, benefiting from the difference.
If you have a bag of rice currently selling at N10,000. If you believe, by government policy the price will fall to N5000 next week. What would you do? I don’t know but I guess the right thing to do is to sell now – and buy two bags later.
In making your first trade, you must know how much it will cost you especially when you are going long. Says, USD is equivalent to N1,000. If you buy with the hope of selling in the future, how much will you gain (That’s called spread).
Don’t forget, if you go to supermarket, and you pick a bottle of coke knowing fully well how it sells for, you now extend N300 to the store keeper (You Bid at N300).
Because there is AC in the shop, the store keeper now said it’s N400 here (ASK price). There will be deal if you accept or you go elsewhere if you reject.
The bid price is what the dealer (YOU) is willing to pay for a currency, while the ask price is the rate at which a dealer (STORE KEEPER) will sell the same currency.
You have to be mathematical to decide whether to stake a bet on the coke or find alternative because it is not meant to be consume. You have to be a forecaster that if you buy your coke now at N400, you can sell it for more in a short while.
The difference between how much you buy and sell is the spread on the trade. You can call it gain. Understanding this help forex traders to decide which trade to enter.
Look out for this Price and Quote
When you trade Forex, you will see Ask and Bid prices.
• The ask price is the price at which you can buy the currency
• The bid price is the price at which you can sell it
What does it mean? When you buy the Coke as in the example, you go long. When you sell the Coke, you go short on the trade. What this means is that as forex traders, you can trade both long and short.
The price at which the currency pair trades is based on the current exchange rate. It is the amount of the second currency that you would get in exchange for a unit of the primary currency – usually the stronger one.
For example, if you could exchange 1 USD for 10 Naira, the purchase and sale price your broker gives will be on either side.
If the way brokers make a profit is by collecting the difference between the buy and sell prices of the currency pairs (the spread), the next logical question is: How much can a particular currency be expected to move? This depends on what the liquidity of the currency is like or how much is bought and sold at the same time.
The most liquid currency pairs are those with the highest supply and demand in the forex market. It is the banks, companies, importers, exporters and traders that generate this supply and demand.
The major currency pairs tend to be the most liquid, with the EUR / USD currency pair moving 90-120 pips on an average day and therefore providing the most opportunities for short-term trading.
In contrast, the AUD / NZD pair moves between 50 and 60 pips per day, and the USD / HKD currency pair only moves at an average of 32 pips per day (looking at the value of the currency pairs, most will appear with five decimal points).
The main Forex pairs tend to be the most liquid. However, there are also many opportunities between minor and exotic currencies, especially if you have some specialized knowledge about a certain currency.
EUR/USD is the forex ticker that tells traders how many US Dollars are needed to buy a Euro. The Euro-Dollar pair is popular with traders because its constituents represent the two largest and most influential economies in the world.
What should you do as a new trader? Follow real-time EUR/USD rates and improve your technical analysis with an interactive chart. Discover the factors that can influence the EUR/USD forecast and stay up to date with the latest EUR/USD news and analysis articles. GCR Downgrades Nigerian Breweries Ratings, Outlook Evolving
