Making Sense of Forex Trading
If you're just starting out in Forex trading the amount of information available is mind-boggling. That can make it very difficult to get started for those who never traded before.
The very first thing you should know is what Forex trading is. You may also wonder why this called FX trading rather than Forex investing. Trading is shorter-term in nature than Forex investing. Although there is long-term trading, most the time Forex trading means short-term trading. A short-term currency trade can last from several minutes to several days.
In essence, a Forex trade is a complete transaction in the Forex market. For example, when you buy a currency pair such as the EURUSD and then you sell that currency pair at a profit or a loss that is considered to be one complete trade. Every trade consists of an entry price as well as an exit price.
Every Forex transaction must also specify the quantity to be traded. Each unit traded is called a contract and is also referred to as a lot. When you buy 10 contracts of the EURUSD and sell 10 contracts of the EURUSD, you have just completed a 10 lot transaction. How many contracts to trade depends on a number of factors, such as your available capital and the number of contracts dictated by your Forex system.
So now we know a bit about what FX trading is how to go about trading successfully? That's a very good and important question. Your objective as a Forex trader is to grow the equity in your account. In order to do this you must have a Forex trading system or method with a positive mathematical expectation. Some may say that's a fancy way of saying that your Forex trading system needs to make more money than it loses.
As we are speaking about profit and loss it is important to note that far too many new traders concentrate on the percentage of winning trades. Having a high percentage of winning trades is not an absolute necessity. In fact, there are a number of Forex systems that only have 50% winning trades that happen to be extremely profitable. Rather than focusing on having a high percentage of winning trades, we should focus on the fact that we will always make money as long as the sum total of our winners exceeds the dollar amount of the sum total of our losers.
What we just covered is a brief overview of a few of the basics of trading. From here you should continue to learn more about trading in the Forex markets so that you can do so successfully.