Simple guide to FX trading

Forex trading or FX trading is the simultaneous buying of one currency and the selling of another.  It is determined by the rate of exchange of currently. Traders typically simultaneously buy one currency whilst selling another in the hope of making a profit when the value of the currencies change.

All FX quote currencies in pairs, for example, the Pound versus the US dollar or the US dollar versus the Euro.  As one currency increase in value, it strengthens against the other and the value of the other decreases.

However, you need to ensure that you manage the risk of FX trading effectively using guaranteed stop losses, a limit order, a stop loss order, an if done order or a OCO (one cancels the other) order.

A guaranteed stop loss – your trading will close if it reaches a certain level to avoid any major losses.

A limit order – allows you to predetermine a higher price than the current price at which you want to sell at or a level below that you wish to buy at.

A stop loss order – limits your trading risk and limits your losses.

An if done order – this can be used if you cannot monitor the movements in the market continually but still wish to participate or withdraw depending on how the markets change.

OCO order – This order is used by those wishing to get in and out of the market without having to constantly monitor it.  It is a combination of a ‘link’ and ‘stop’ order which is used to take a profit if the market moves in your favour or limit your losses should it move against you.