This means they will fluctuate depending on market conditions. Generally, spreads are lower when liquidity is high and higher when the liquidity is low. The objective of all Forex traders is to maximise profitability and minimise losses.

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In order to do that, it is necessary to take into consideration pips and lot sizes. It depicts the minimum movement which prices can move in Forex.

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Most Forex quotes are quoted up to 4 decimal points. Hence a pip in a Forex quote represents 0. Nevertheless, it should be noted that the quote for the Japanese Yen pairs are different as they are typically only quoted up to 2 decimal points. Hence, a pip for Japanese yen pairs is only 0. A trading lot is the amount of the currency that a Forex trader will trade. The size of each standard lot is equivalent to , units of a currency.

Fortunately, due to the availability of leverage, a trader does not have to fork out the full amount in order to trade in a standard lot.

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Apart from a standard lot, there are other popular lot sizes, such as a mini lot 10, units and micro lot 1, units. Market orders are transactions which are executed at the current market price. This can be either an order to purchase or sell a currency pair. The two primary analyses for them to rely on are:. With fundamental analysis , a trader will take a macro view of the economic factors that can affect the price of an asset. Some of these factors include the interest rate imposed by the Central bank, political situation, climatic situation, unemployment level, inflation level and the Gross Domestic Product GDP of a country.

The primary objective of fundamental analysis is to look at the fair or intrinsic value of an asset. For a fundamentalist, an asset price will always settle at its intrinsic or fair value in the long term. So, trading opportunities will arise when the price of an asset deviates from its intrinsic value.

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A technical analyst believes that history will repeat itself and so, he will try to discern patterns in the price movements of an asset that will help to indicate any arising trading opportunities. As opposed to a fundamental analyst, the technical analyst believes that all the underlying factors of an asset are already reflected in its price.

In other words, price movements are not random but patterned. A technical analyst relies on two key tools to help him makes his determination. They include the following:. Apart from being able to identify trading opportunities, it is equally important for a Forex trader to be able to manage his capital resources.

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In fact, this skill is critical for the long-term success of a trader. Apart from these tools, there are also numerous money management tools which traders can employ in order to help them manage their trading risks better. Having good money risk management strategy not only helps to control your trading risks but also helps you to promote capital growth over the medium and long term period. When we talk about trading psychology , we are referring to the mindset of traders when trading the financial markets.

Because we are dealing with real money, most people will find it difficult to emotionally detach themselves from it. Invariably, they will let their emotional state influence their trading decisions and usually with negative results. As human beings, we all experience a range of different emotions during different circumstances. Likewise, during trading, many traders will feel different emotions such as euphoria, fear, greed and overconfidence. Letting one succumb to these emotional states can result in making bad trading decisions such as holding on to a market position despite accumulating losses in that position.

In order to overcome emotional trading, it is critical that you come up with a trading plan and stick to it despite everything else. Foremost of all, it is important to have the right broker when beginning your online trading endeavours. While there are literally thousands of online Forex brokers to choose from on the internet, the right broker must, however, be able to fulfil certain key criterion.

AvaTrade has made their trading platforms easily accessible to traders from all over the world by imposing only a low minimum deposit. When trading in Forex, we will be dealing with currency pairs where the value of one currency is quoted relative to another currency. Forex currency pairs can be grouped into three groups, Majors, Minors and Exotics.

Although it is possible to trade with any type of currency pairs, beginners are always recommended to stick with just majors and minors until their trading skills have improved. On the MT4 trading platform, there three ways to open a market position i. By doing so, a trader hopes to earn a larger profit despite trading with a smaller amount of capital. While leveraging has its upside, it also has a downside. As such, traders are always recommended to only use a reasonable level of leverage and not overextend themselves.

In addition, to manage their trading risks better, traders should also always use appropriate risk management tools such as stop-loss orders to close their position automatically when faced with a losing market position. As mentioned earlier in our trading psychology section, a good trading strategy is needed if you ever want to be successful in online Forex trading. A good trading strategy must cover the following areas:.

Before you start trading, you need to first decide what timeframe you want to trade. Do you wish to be a day trader and scalp, or do you wish to trade for the short and medium-term? The timeframes that you trade will determine the charts that you will use. Scalpers and day traders will use charts with shorter timeframe such as one minute, 5 minutes and 30 minutes.

Short term and medium-term traders, on the other hand, will use charts with a longer timeframe, such as one based on daily or weekly price movements. Next, decide if you wish to trade the markets using technical analysis or fundamental analysis. As discussed before, technical analysts use historical price data to determine possible future price movements. Fundamentalists, on the other hand, rely on studying the factors that can affect the intrinsic value of an asset. This section essentially has to do with self-discipline.

Because we can get worked up emotionally when trading, it is best to write down the conditions that you will trade with and stick by them. This can be the number of hours traded, the number of trade entries and exits, stop loss levels and take profit levels.

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All trading activities will involve risks. The same goes for Forex trading. Therefore it is essential that you manage your trading risks properly so you can maximise your profit potential. Risk management includes managing the amount that you will invest in each trade, the type of asset that you will trade with and the number of positions that you will have open at any single time.

Once you have developed your trading strategy, it is essential to test it out and iron out any kinks that you might find before actually implementing it in the real world. At AvaTrade, the broker offers free demo accounts that can be used for testing out your trading strategy without any real risk. This is because the higher your stake, the more profit you stand to gain. But on the other hand, the higher the risk you take by increasing your stake, the bigger your losses. Forex trading requires patience as it takes a long time to make meaningful profits while keeping your risk levels low.

Those who want to make a substantial profit in record time are forced to take more risks by making higher stakes. It all depends on your appetite for risk. The amount a trader should stake is usually determined by the trading style of the investor. Forex traders who trade for a short period prefer to invest small amounts. Those who are into forex for the long haul, invest much more and allow the profits to gradually accumulate and grow.

Like other businesses, forex trading has its own risks.

The level of risk in forex depends on some factors including how much you started with. As we all know, forex is dependent on the upward and downward movements of currency prices. Those with small accounts run a higher risk of having their accounts wiped out when the market is down. Experienced brokers who want to minimize their risk levels and maximize their leverage usually start forex trading with moderate amounts.

They understand how to take calculated risks. From our analysis, the amount of money you need to start trading forex depends on a lot of factors. The decision on how much to invest in forex trading rests squarely with the intending investor. If you have a lot of money, you can minimize your risks and make a considerable profit in the long run.

If on the other hand, you have little money, the only way to make a significant profit is to take higher risks. Have you ever tried to trade in the forex market? How much did you start with?

Did you open a demo account? Or did you invest real money? Please share your thoughts with us.