Trading in currency pairs is the best way of growing rich. The main thing is to understand the theory and know how to use the basic rules in practice.
The forex market allows you transactions. But if you want your transactions to be successful, they should execute them under certain rules. In this post, we’ll discuss one of the most popular approaches to opening positions which are based on breakouts.
But first things first,
Let’s go over some terms, so you don’t have any problems reading the article.
This term comes from the world of futures contracts. It means 1/100th part of a lot, i.e., the tiniest price movement in the market. One pip for AUD / USD, for example, is 0.0001.
Lots (lot – singular form) is a standard unit of measurement used by traders to denote the risk or value of one futures contract. 1 lot = 100 000 units of the base currency.
3) Open Position
An open position is an assumption that the dealer opens a transaction with certain rights and obligations to the person on the other side. An open position allows you to earn pips. When these positions are closed, they give profits or losses.
Margin is the amount of money a trader needs to take out before opening a position. The broker gives this amount as collateral. For example, for EUR / USD, the margin is ~5% from the value of the transaction.
A point at which they force a trader to close a transaction with loss. The stop-loss level can be above or below the entry position. This term sounds more complicated than it is.
For example: if you buy EUR / USD and the price falls and reaches your stop-loss, then it will be closed. That means that it will cancel your position, and you will sell your currency at its market price. Traders usually put a stop at 20 – 30 pips from the entry point (above/below).
This is a point at which they force a trader to close a transaction with a profit. They can place the TP point above or below the entry position.
For example: if you buy EUR / USD, the price rises and reaches your TP level, then it will be closed at this price (with the sale of currency pair at market price). In most cases, they place stops 50 – 60 pips from the entry position (above/below).
Breakout is when a trader opens a position under certain rules. They don’t close the open transaction until the movement is over.
The Currency Trade Explained
They trade the currencies by exchanging one currency for another. Forex traders looking to make a sale need to find someone willing to sell the required quantity of the desired currency and buy it.
The forex markets are open 24 hours a day, five days a week. This means that traders can access and react to market movements, not during trading hours. Currency transaction costs vary depending on the type of trade and the identity of the trader (e.g., individual or institutional).
Cross-currency pairs have lots of variables that impact the exchange rate. Market volatility is another important factor that affects currency prices. They call currency buying and selling orders, trades.
There are two basic types of forex trades: long and short, meaning purchases and sales.
The money that is exchanged, between countries does not equal the economy of a country. They change the value between the international accounts.
Here is how it works: We bought 1000 units of base currency for 1000 Polish Zloty. Then we put our stop loss 20 pips below the transaction, i.e., at 980. And take profit 50 pips above the entry position, i.e., 1050.
The breakouts strategy gives the basis for opening a position. The essence of this strategy is quite simple – you open a transaction toward the major movement.
And the market does not matter – if there is good news on one side, experienced traders use this opportunity to make money on the other side by scalping.
Let’s say that the EUR/USD stays between 1.2650-1.2720 for 10 minutes and then breaks out to go higher than its resistance level. The price continues to rise and reaches a balance of 1.2870/80, where it merges for a while.
When there is important news, the prices might break out of a range. It is possible to keep your open positions or to add more of them. If you think that, the information will be important.
If we have several open positions with TP set at 1050, and SL 20 pips below, then we opened transactions at 50-60 pips down. These positions do not change our profits up or down. We fix 50% of them and roll back the rest. If a new position comes with a profit target of 1050, we will have an SL 20-30 pips below it.
What’s important is, if the EUR/USD falls after staying at 1.2870, it will close all your open positions in one fell swoop.
Cross Currency Trading Tutorial (USD / PLN)
1 PLN = 0.2493
1 USD = 3.8 PLN,
If someone wants to buy 1 USD for 3.8 PLN, they will type this into the calculator: 100 USD/3.8 PLN. The result would be that he or she could only buy 0.254 units of PLN with one US dollar because 100 divided by 3.8 equals 24 units of PLN.
The app rounds this price up to 25 units of PLN because it cannot be precise beyond two decimal places. If you want to buy 25 units of PLN instead of 0.254, you need two more dollars, but then you will have spent 4 dollars instead of 3 dollars and eighty cents.
Cross-currency trading aims to hit a double rate to ensure that you make the same amount of profit. But don’t get overconfident in your calculations. Instead, it’s best to seek an excellent opportunity for trading and use your usual forex strategies. We know such a strategy as ‘reciprocity’.
This strategy is about using the same set of rules when there is a lot of interest in a currency or when there is not much interest in it. With this strategy, you will get the same result, but you need to find what works for you.
How Can I Start?
To trade, it’s important to consider the size of your investment. Also, the extent of your knowledge of the market. You must also keep in mind that you can never go back and change a transaction once complete.
If you’re new, then it’s recommended that you do not try over one type of currency, as this could be frustrating. Try to use one currency when you trade, and make sure you do everything in your demo account. You can find free tutorials and forums online too.
Start trading with long positions for both currencies. You can also try trading in very short-term transactions or many lot trades.
Follow The Basic Principles
If you already know how to trade with cross-currency, you can use your knowledge. You still find that the values differ from those in forex trading.
The main difference is that when trading contracts in two different currencies, the contract sizes are bigger.
What Do I Need?
To start currency trading, you need a computer and internet access. That is how you keep up with changes in the market.
It is crucial to have enough research done about trading currencies. You should know enough to make good trading decisions.
How Do I Increase My Chances Of Success?
- When starting, don’t try over one type of currency since this can be very frustrating if you’re new to forex trading.
- The number of currencies involved makes the size of an international currency trading contract.
- Consider the amount of money you want to risk in a trade when choosing an investment amount.
- It is better to set a small take-profit value than a stop loss value.
- If you cannot watch the market, hire someone who can.
- Before risking your own money, it’s vital to know what tools and resources the broker offers.
- When trading forex strategies, do not use stop levels when the timeframe is 15 minutes or fewer.
- A moving average can help you figure out if the price of something will go up or down. Draw a line on the screen and let it sit there.
- Don’t choose a broker based on what other people are saying.
- Be careful about which strategies you want to use when entering new transactions.
The 3 Key Ways To Trade US Dollar To Zloty
The Spot Market
The spot market is the primary forex market. They show real-time prices and rates of the currencies.
How it works: When trading the spot market, you are exchanging currencies at the current rate. You can see live rates of currency pairs on your trading platform or an online forex service such as XE dot com.
If you think the Euro will go up in value against the US Dollar in a few days, you could buy Euros now with US Dollars. You can then sell them when they are worth more US Dollars. Which means “going long.”
If you think the American Dollar will be more valuable than other currencies in a few months, then you can sell your USD now and purchase it later.
The Forward Market
A forward market is an option for traders who want to buy or sell a certain amount of currency at a predetermined rate. This option is more like a contract.
How it works: In a forward contract, the two parties agree on the exchange rate and date for delivery. But, they can also settle their buy or sell midway between contracts by making what we call a “closing trade”.
In this example, you have been trading spot with USD/PLN in 2020. You predict that the US Dollar will be stronger in 2021, so you go forward into a contract that locks in an exchange rate of 3:1 for 100 USD at the end of 2020.
In 2021, when you need to pay up, you will get 300 PLN from your counterpart. They have bought 100 USD from you – even though during this time the actual rate was moving around 4:1.
The Futures Market
The futures market is a chance for traders to buy or sell large amounts of money at a set price. It is also like a contract, but it is more for commercial traders than for individuals.
How it works: The futures market is a contract to trade currencies at specific amounts of rates at a future date.
A trader might ask: “How do I know what the rate will be when I want to trade in three months?”
Here, they can go forward by entering a contract now. They will trade currency with another trader on a specific date. They do this through a broker or larger financial institution.
Risks Of Currency Trading
Currency trading entails a lot of risks, and forex trading is no exception. Forex traders use leverage to make a huge profit but can lose a lot of money if their trades don’t work out.
Forex traders must make a trade using a margin of at least 1:100. This way, they can trade at a much higher level compared to trading stocks or commodities.
The primary risk associated with currency trading is over-leveraging. A lot of brokers let their clients trade for 1% of the total value of money they have deposited because trading with a larger amount is too risky.
But, some brokers offer as much as 100:1 leverage to their clients. For example, if you deposit $5,000, then your broker might allow you to place trades that are worth $500,000.
This will make it easier to make profits because you can trade without investing too much money. The problem with this is that even small price movements can cause huge losses when traded at very high levels, like 50:1 or higher. If prices move against your position by 1%, then it could wipe out all your capital.
How Many Contracts Trade On Average?
The amount of contracts traded is larger than the spot market itself. This depends on the currency pairs and if you are looking at a short period or a long period.
But either way, it is not unusual for 100,000-1 000,000 EUR/USD contracts to change hands in one day.
When big companies trade, they trade in millions. It is not uncommon for currencies like the Canadian CAD, Swiss CHF, and Australian AUD to have a daily turnover of 10,000-100,000 contracts each day.
What Time Do Currency Trading Markets Open & Close?
The Forex market is open 24 hours a day for 5 days a week, except for several holidays throughout the year.
This means that we can trade currencies day and night. But it is not a good idea to do trades at night because of the lack of liquidity.
What Are The Benefits Of Trading Forex Online?
There are many benefits of trading Forex online. One is that you can see the rates on different platforms and change your viewpoint by doing many trades in a single day. Compared to other financial instruments.
So if you are looking for an accurate forecast for the USD/PLN value, you can make deals throughout the day. This will tell you how much more USD or PLN you need. This helps traders manage their risks more.
The W-W-W gives traders the latest market data, reports, and tools to analyze their investments. Traders can compete on a global scale because they don’t need a ton of money to invest.
You can trade even when you’re at work or in your free time. All you need is access to an internet connection. Trading from home means that you don’t need expensive office space and equipment.
Is Cross Currency Trading Beneficial?
Cross Currency Trading can cause a significant increase in the number of trades that you make. It is important to note that these increases are usually short-lived.
During the time before they wear off, your profits in forex trading can also decrease. For this reason, cross-currency trading is only beneficial when done with caution.