EUR/USD Trading Tutorial

If you are interested in forex trading, one of the first things you have learned is that the US dollar is the most traded currency on earth. The Euro is the second most traded currency. It is not surprising that the pair of EUR/USD is the most traded currency pair today. There is $1.173 trillion worth of trades in the EUR: USD pair every day. It is a huge number! This value represents about 23% of the total forex trading volume on any given day.

You may ask, why do most traders use the EUR/USD forex? As mentioned, the US dollar and Euro are the two most-traded currencies in the world. And because the trading volume per day is so huge, it offers high liquidity. It means traders are willing to buy and sell this currency pair any time of the day. So, once you achieved your profit goal, you can sell your position fast as other traders are ready to buy it.

Another reason why this is a favorite currency pair is that the exchange rate of these currencies is stable in general. The stability is due to the strong economies of both the USA and the countries in the European Union. In contrast, trading on the currencies of emerging nations is more volatile. The currencies of these nations are called exotic currencies. They have lower economic indicators and are more vulnerable to market pressures.

Also, information flows freely in the USA and the European Union, more than anywhere on the planet. The central banks and regulatory agencies have regular updates on the economy, interest rates, growth forecast, and other things. They also have strong and independent media channels that report what is happening in the political, economic, and social environment.

Press freedom is respected and encouraged. It results in the regular reporting of information and events most of the time, without bias. These kinds of information are vital in making better decisions on when to start and stop trading. It will also help you in creating and executing your trading strategies. 

What is the history of the Euro and USD?

The EUR/USD forex trading pair is relatively new, tracing its beginnings in 1999. It is the year the Euro was born. It is young compared to other currencies in the market that have been there for centuries. Or even more. The Euro started as a digital currency before it evolved to a regular currency note in 2002. During this time, it already has printed paper notes and coins in circulation. Not long after, the European Union adopted it as their official currency. It replaced the old currency notes of the individual countries. To be exact, 19 countries out of the 28 in the European Union use the Euro today.

The US dollar is the monetary unit of the United States of America. It has been in use for more than 200 years since the American liberation period. Global financial institutions such as the IMF and World Bank consider the US dollar a global reserve currency. So, most countries in the free world use USD as their currency reserve. The US dollar is also the benchmark in identifying the value of the currency of a particular country. Due to this, the US has become the center of global finance and an economic superpower. The USD is the number one most traded currency today. It is also one of the most stable trading instruments such that when the prices of commodities drop, investors will move their money to the dollar.

What are the factors that affect the EUR/USD exchange rate?

All forex trading carries its fair share of risks. And that includes the EUR/USD trading pair. It is vital to identify the factors that can affect this forex currency pair. It will increase your success rate and help you gain more profit to reach your financial goals.

Below is the list of the factors that affect the EUR/USD exchange rate.

  • Policies of the central banks. Specific to the EUR/USD currencies, the monetary policies from the state regulators have one of the lasting effects on the exchange rate. In the USA, this is a task by the Federal Reserve or FED, and in the European Union, the European Central Bank is in charge. Among the policies that these central banks do that directly affect the EUR/USD rates are adjustments on interest rates, computation of inflation levels, economic growth forecast, and quantitative easing.
  • Economic condition and indicators. Economics data reflects how healthy the economy of a country is. It also helps to predict economic growth in the coming months, quarters, or years. The most vital indicators are GDP (or gross domestic product), CPI (or consumer price index), and interest rates. Other factors include the unemployment rate, minimum wage, inflation rate, and retail sales volume. Fortunately, these kinds of information are readily available in the US and countries of the European Union. There is a regular release date for these data that are open for public consumption.
  • Political events and policies. Politics play a crucial role in the economic, social, and cultural dynamics of a country. Recent political events such as the US elections and several policies by former president Donald Trump have affected the value of the US dollar. In Europe, the UK’s Brexit from the European Union has negatively affected the Euro and the other currencies of the world.
  • Environmental and health problems. Natural disasters such as powerful hurricanes and devastating earthquakes can shake up the forex market. During these emergencies, economic activities come to a halt. Power and telecommunication failures and the closure of offices and transportation systems affect trading activities. And more recently, health concerns such as the covid pandemic have changed the economic and social life of people everywhere. Frequent lockdowns, closure of factories and industries, and insufficient supply of vaccines are all too common.

Remember that aside from these factors, other things can cause the rise or fall of exchange rates. But those mentioned above are the key triggers that affect the EUR/USD forex trading.

How do you trade the EUR/USD?

Before we go to the step-by-step guide to trading the EUR/USD, let us see what investment assets are available for those interested in this currency pairing. First, you can invest by buying the currencies. It works the same way as investing in other assets, such as stocks. But, since the EUR and USD are both stable currencies, any price change is typically very minimal. It means the profit is also very minimal. It is not an ideal investment asset, and your money will grow faster elsewhere.

Another option is trading using the EUR/USD currency pair through CFDs (or contracts for difference). Since CFDs use leverage in trading, the margins can increase substantially. It means that the movements in the value of the currency will turn out to be more profitable, up to 1,000 times. But the risks are also multiplied. To remedy this, you will need a good trading strategy. Choose one with a stop-loss order to cut the losses.

Now that you know your options for trading EUR/USD, here are the steps to get started on trading.

  1. Locate a brokerage firm. To be able to trade in forex, you need a broker to place your orders. Many brokers are available today. They offer a lot of information, training, insights and charge low commissions. Assess the firm that best fits into your needs, financial goals, and trading style. Choose only the broker that has regulation in the major countries where they have offices. They must also have a consistent and profitable track record of delivering successful trading solutions for their clients.
  2. Deposit money into your trading account. Check with your broker the various ways of depositing money to your live trading account. Some traders will offer different platforms ranging from traditional credit card and bank transfers to digital wallets. Choose convenience all the time. Get familiar with the minimum deposit requirements and fees to avoid problems when you are finally ready to trade.
  3. Download and get familiar with a trading platform. Most brokers have a trading platform that can be used readily by their clients. If not offered by your preferred broker, search the web for popular trading platforms, such as the Metatrader 4 or 5. Ensure that you explore the platform and go through all the features so you can maximize the benefits.
  4. Search for the currency pair EUR/USD in the platform. Since brokers offer many investment assets rolled into one platform, you must be sure that you are in the right section. Use the search function if this is available. If not, find the CFD forex trading section from the dropdown list.
  5. Check the prices for the bid and ask. There is a different price when you buy forex currencies and when you sell them. A bid price is a cost a trader sells a forex currency, while the asking price is the value traders can buy.
  6. Check the spread and know the spread fee. In forex trading, a spread is a difference between the bid and the asking price. This value is the cost for the trade, and it goes to the broker as profit. The more trading you do, the higher the fees you must pay to the broker.
  7. Know the leverage and the maximum level set by the regulator. It is how much your money will be multiplied by to get full exposure to the market. When you buy currencies, you need to purchase lots (one lot is 100,000 units). For retail traders, this is too expensive. Leverage will allow you to buy lots. Some brokers will give you as much as 1:1,000 leverage. In other markets and instruments, the regulator controls the maximum leverage. Be sure to check the maximum allowed in your region to participate in trading without the hassles.
  8. Decide if you want to go long or short. When you are ready to perform actual trading, take a position in the market. When you go long, it means you expect the value to go up. Going short means that you are skeptical and predict that the value will go down. At times, a hedge position is open. It is when both long and short positions exist simultaneously.
  9. Booking of profits. As a rule, you must regularly book profits to avoid losses or reversals of profit because of unrealized profit. When you leave a trading position open, your losses may add up, or your gains turn around.

What is the best time for trading the EUR/USD?

Since this currency pair involves the currencies of the USA and countries in the European Union, the most active trading hour is the morning at the New York Stock Exchange, which is late afternoon in Europe. To be exact, the time between 07:00 to 20:00 GMT is most active. The peak number of trades happens from 13:00 to 16:00 GMT. When you trade during these hours, you will see that trading volume and volatility are the highest. In contrast, the period of lowest activity happens at the close of the US stock markets and the opening of their counterparts in Asia. 

What are the risks of trading EUR/USD?

Trading currencies involves risks. And profits are not guaranteed. You may have the best brokerage firm behind you and use the best trading strategies you can think of, but still trade at a loss. It is best to identify the areas where the risk is highest so you can manage them better. 

Leverage is the first area you can manage your risks. The concept is exciting for small traders since you can trade with only a minimal amount. But, it also multiplies the opposite reaction. With leverage, the losses you can incur will also increase based on the multiplier you use. Some brokers offer more than 1:1,000 leverage. It is a high risk that you should avoid, especially if you are new to trading.

Another factor to consider is your trading stake. It is best to set limits to how much you will trade for every currency pair. Even if you are using the stable currency pair of EUR/USD. Never use your total deposit amount, but only a small percentage of it.

Liquidity is another aspect to look out for. Periods of low liquidity mean that there will be a delay in closing your order. It happens when there is not enough trading activity happening. It is risky since prices might have already changed by the time the closing of your order is processed. It will result in a significant decrease in profits.  

Will Eurusd go up or down?

The answer to this question depends on a lot of factors. There is no sure way to tell if the EUR/USD will go up or down since market forces impact the value of the currencies. But since both the Euro and USD are stable currencies, any increase or decrease will be very minimal. 

Why is the EUR USD going up?

The US dollar has been performing weaker this 2021 as the covid pandemic continues to ravage the United States. The US has the highest number of covid cases in the world today. And with the new covid variants spreading, the market will continue to show a slow recovery. Also, the recent decision to withdraw all US troops from Afghanistan has gained criticism from Americans. With the Taliban storming the capital Kabul and retaking the city. These events may have contributed to the rise in the value of the Euro. 

How do you read eurusd?

As we have discussed, the EUR/USD compares the value of the Euro and the US dollar. In this case, we are finding the value of the Euro by comparing it with the US dollar. Looking at the flipside will give us USD/EUR. In this case, we are finding the value of the US dollar by comparing it with the Euro. But for now, let us go back to the EUR/USD currency pair.

There are two components in a currency pairing. The first is the base currency, which is always on the left of the pair. The second is the quote currency, located on the right side of the pairing. It will tell you how much of the quote currency you will need to buy a single unit of the base currency. So, in the pairing EUR/USD, EUR is the base, and USD is the quote currency. If the current EUR/USD exchange rate is 1.16, it means you will need $1.16 to buy one Euro.

What is the euro trading at against the dollar?

As of Aug 21, 2021, the EUR/USD rate is 1.1698. The Euro is up by almost .18% versus yesterday’s level. So, to buy one Euro, you will need 1.17 US dollars if you trade today.