Forex trading involves buying one currency and selling the other to profit from the price differential over a period of time. Currencies are traded in pairs with the first currency called the base currency and the second currency, the quoted currency. When you have a positive view on a currency pair, you buy it. Likewise, when the market sentiment for a particular currency pair is negative, you sell it.
Example: In the GBP/USD pair, Pound Sterling is the base currency and the US dollar is the quoted currency.
If the GBPUSD pair is trading at 1.3000 and there’s data or information to suggest that the US dollar is likely to weaken against the Sterling, you would buy Sterling at 1.3000 and sell it when you think you’ve earned sufficient returns. If, for instance, you sold the Pound at 1.3050, the difference between your selling price and the buying price multiplied by the contract or lot size is your profit. In this example, your profits are (1.3050-1.3000)*100,000= $500.
So, how do you actually trade in the forex markets?
One way of trading is by calling your forex broker and requesting them to place the buy/sell orders on your behalf. The second method is to place the trades yourself using the online forex platform provided by your broker. The second category is also called “Online forex trading” and comprises of trading in the forex markets without the assistance of the broker.
Forex brokers are typically categorized into
- No dealing desk FX brokers
- Market Makers
- Electronic Communication Network (ECN) brokers
Irrespective of the category of forex broker, a majority of them offer atleast one online trading platform for retail investors which may not only comprise of a large number of forex pairs, but include additional financial products like precious metals, CFD’s and cryptocurrencies. The key advantage of online forex trading is to do away with the habit of relying on your forex broker to execute your trades, which can be very frustrating especially during volatile markets when the broker takes time to answer your calls and confirm trades. The other benefits of online trading you can analyse and monitor the numerous asset classes accessible on the online platform, monitor the markets on the go, choose the desired lot size and execute trades at your own pace.
Online trading not only gives you the freedom to quickly enter and exit the markets at the click of a button, it also cuts down on your trading fees, allows you to automate trades, enhances your learning process and enriches your knowledge and trading skills by giving you access to a large number of financial products and a wide variety of online trading tools.
In addition, forex brokers like JustForex broker have also integrated social trading to their online platform which facilitates clients especially beginners to analyse and copy trades of successful signal providers based on the trading period, max drawdowns, profit factor and a variety of other key trading parameters. Traders can also publish strategies, share ideas and chat with traders within the social network.
With the evolution of forex markets, the features and benefits of online forex platforms in the retail space has increased multifold. As long as traders are able to effectively manage their risk, online forex trading is not only a breakthrough, but a boon for retail traders.