By now, you’re probably earning a lot of money demo trading from our previous lesson. That’s great, and you have probably learned some of the things that makes a trading platform. They are and will be your friends for a long period of time as you venture into this fascinating world of forex trading. Think of trading platform as your partner, as a wholesale store where you can buy products that you can sell later on for a profit. And in this lesson, we will get to know them better.
When you first login to a forex trading platform, you’ll see something like this:
It can be a little daunting at first. But once you get to analyze its parts, some of them are pretty self explanatory. Like for example, the account summary section above #2 is your deposited amount of money and available margin when trading. I think the only confusing parts of it are these 3 labeled accordingly.
#1 – Forex Trading Charts
The chart is confusing isn’t it? If you’re not mathematically inclined or have never been into a technical field where presentation of charts are used, this can be a little tough to swallow. But bear with me. Once you know how to use the charts to read the currency, you’ll love it.
The chart is the representation of what’s happening in the market. You can choose what market you wish to trade in. For the above example, I chose to trade in the EUR/USD pair. What this means is that, I am buying or selling Euros and Dollars to make a profit. When I say I’m buying EUR/USD what that actually means is that, I’m buying Euros using my Dollars. And when I’m selling EUR/USD, I’m selling my EUROS to earn Dollars.
In a forex chart, you can do a lot of things. And forex trading systems depend on charts to function. You may draw lines, put in some indicators and whatever you want to make your trading easy. Most mathematically inclined traders will use charts, drawings and indicators to help them trade. And we will also learn to do that in the coming lessons. For now, just keep in mind that, if you want to know whats happening in the market you want to trade in or trading in, the chart is the first one you should look at.
#2 – Quotes Panel
The quotes panel is where the prices of our products are. Mainly speaking, the price of the currency. Here’s a closer look:
For this example, we are looking for the quote for EUR/USD. If we want to BUY EUR/USD we should be looking at its BUY price (1.3458). If we want to sell currency, we should be looking at the SELL price (1.3456). There is a 2 PIP spread difference between the BUYING and SELLING price, that’s where the brokers earn their money. They don’t charge hefty commissions like stock brokers, only the spread of 2.0 or so PIPS. Because of the competitiveness of forex trading, most brokers offer spreads that are even less than 1.0. You may look at some brokers found on our forex brokers list here.
Sometimes, you will see BID – ASK instead of BUY and SELL, and traders will oftentimes talk about trading with LONG and SHORT. Here, I’ll clarify some of that.
BID / ASK
The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you (the trader) will sell to the market.
The ask is the price at which your broker will sell the base currency in exchange for the quote currency. This means the ask price is the best available price at which you will buy from the market. Another word for ask is the offer price.
If things becomes complicated, use this: BID = Sell and ASK = Buy.
LONG / SHORT
Long = BUY and SHORT = SELL
So how do you make money from this?
Simply put, if you BUY the currency pair, you will earn money once that pair goes up (as indicated by the chart). You’ll lose money when it goes down.
If you SELL the currency pair, you will earn money if it goes down and you will lose money if it goes up.
How much money can you earn?
The amount of money you earn per PIP increase from your starting position in the chart depends on the amount of lots or units you buy. For example, if your BUY EURUSD at price of 1.3456 with 1 lot and it goes to 1.3457. You have a 1 pip increase and you earn $10. The market can move 1000 pip in a single day and that means you can earn more or less $10,000 in a day with one lot. BUT you may want to adjust the lot size when you trade, though larger lot size will equal great profits, its a double edge sword, you also lose the same amount at the same rate if you’re wrong.
Some brokers do not use lots to determine the amount of EURUSD you buy. But use UNITS instead. Just keep in mind that 1 lot is equals to 100,000 units and do you math from there. Let’s say you want to $1 per pip. You will put in the units at 10,000 units and the lot size at 0.1 lot.
#3 – Current Trades
As you become more adept at trading, you may want to trade in different currency pairs to take advantage of more opportunities. Say, you want to trade in USD/JPY or British pounds. You may do so anytime, the quotes panel have the price and you may choose the chart for the corresponding pair you want to trade in. When you do have different open positions, all those positions are put on the Current Trades panel. That is like your portfolio (if you do stocks) where you have a birds eye view of your holdings and manage them.
- By now, you should be able to glide through the trading platform. What I want you to do is to play around with the charts using your demo forex trading account. Draw anything on the charts and figure out if you could predict where the trend will go using some indicators and drawings. You may want to read about fibonacci and support & resistance lines.
- Play around with different lot sizes and unit sizes using your demo account. Figure out how much lot sizes you are comfortable trading with.
PREV: Lesson 2: Forex Trading Setup
NEXT: Lesson 4: Forex Trading Psychology – Mindset of a Successful Forex Trader