How to trade forex

Forex trading steps

1. Choose a currency pair to trade
2. Decide whether to 'buy' or 'sell'
3. Set your stops and limits
4. Open your first trade
5. Monitor your position
6. Close your trade and take your profit or loss

Decide whether to ‘buy’ or ‘sell’

Once you’ve chosen a currency pair to trade, you need to decide whether you want to ‘buy’ or ‘sell’, based on your analysis.

You would buy the pair if you expected the base currency to rise in value against the quote currency. Or, you would sell if you expected it to do the opposite. That’s because a currency pair’s price represents how many of the quote currency you’d have to spend to buy a single unit of the base currency.

For example if the price quoted for GBP/USD is 1.28000, it means you’d have to spend $1.28 to buy £1 – so the pound is stronger than the US dollar.

Set your stops and limits

The forex market is particularly volatile, which is why it’s important to have a plan to guide the entry and exit points of your trades. There are various stops and limits you can set to manage your risk when trading forex:

Open your first trade

If you want to trade on the value of forex pairs rising or falling with CFDs, why not open an account with us? Once you’ve done that, simply go to our award-winning trading platform,¹ search for the forex pair you want to trade, enter your position size and choose ‘buy’ or ‘sell’.

There’s no obligation to add funds until you want to place a trade.

Monitor your position

Once you’ve opened your position, you can monitor your FX trade in the ‘open positions’ section of the dealing platform. You can also set price alerts to receive email, SMS or push notifications when a specified buy or sell percentage or point is reached.

Even with these alerts set, it’s still important to keep up to date with the latest news and political events that could move the forex market.

Close your trade and take your profit or loss

Once you’ve decided it’s time to close your position, simply navigate to the ‘positions’ tab, select your position and click on ‘close’. Alternatively, just make the opposite trade to the one you opened. In other words, if you went long on GBP/USD, go short by an equivalent amount to close the position – assuming you’ve selected the ‘net-off’ option on our platform, rather than ‘force open’.

Forex trading examples

We’ve included an example of a forex CFD trade below.

Forex CFD trade

When you trade forex CFDs, you’re agreeing to exchange the difference in the price of a position from the point at which it is opened up until it is closed. To open this position, you’ll pay a small margin upfront to gain exposure to the larger position. However, this means your losses as well as profits can far outweigh your deposit amount. CFD prices are displayed in the same way as a regular forex pair’s quote price – for example 1.31425.

Plus, you’ll be able to take a position on prices rising by going long, as well as falling by going short. Standard forex CFDs are worth 100,000 units of the first named currency in the pair, while mini forex CFDs are worth just 10,000 units of the same. CFDs are liable to capital gains tax, but you can offset your losses against profits for tax purposes.²