Currency Trading For Dummies book cover

Currency Trading For Dummies

Authors:
Paul Mladjenovic ,
Kathleen Brooks ,
Brian Dolan
Published: December 9, 2021

Overview

Trade currencies like a seasoned pro with this friendly, fact-filled guide to the forex market 

Over $6 trillion changes hands in the foreign exchange market every day. You can jump straight into the action with expert guidance from the hands-on Currency Trading For Dummies. You’ll learn how the foreign exchange market works, what factors influence currency values, and how to understand financial data. When you’re ready to create your own game plan for trading currencies, you’ll be able to build it around your investment objectives, experience level, and risk appetite. You’ll also find details on the latest trends in currency trading, including currency ETFs, cryptocurrencies, and currency options. 

From essential newcomer knowledge to advanced positioning advice, Currency Trading For Dummies offers straightforward instruction that helps you: 

  • Source data and market intelligence, employ technical analysis, and use the latest tech to find the most lucrative trading opportunities 
  • Understand the most recent Securities and Exchange Commission (SEC) rules and regulations governing currency trading 
  • Avoid common pitfalls and mistakes made by novice and experienced currency traders 
  • Recognize profitable opportunities in the world of ETFs, currency options, and cryptocurrencies 

Successful currency trading is within your grasp. This accessible roadmap to trading mastery provides the foundational knowledge you need to create a structured, winning strategy and conquer the forex market.  

Trade currencies like a seasoned pro with this friendly, fact-filled guide to the forex market 

Over $6 trillion changes hands in the foreign exchange market every day. You can jump straight into the action with expert guidance from the hands-on Currency Trading For Dummies. You’ll learn how the foreign exchange market works, what factors influence currency values, and how to understand financial data. When you’re ready to create your own game plan for trading currencies, you’ll be able to build it around your investment objectives, experience level, and risk appetite. You’ll also find details on the latest trends in currency trading, including currency ETFs, cryptocurrencies, and currency options. 

From essential newcomer knowledge

to advanced positioning advice, Currency Trading For Dummies offers straightforward instruction that helps you: 

  • Source data and market intelligence, employ technical analysis, and use the latest tech to find the most lucrative trading opportunities 
  • Understand the most recent Securities and Exchange Commission (SEC) rules and regulations governing currency trading 
  • Avoid common pitfalls and mistakes made by novice and experienced currency traders 
  • Recognize profitable opportunities in the world of ETFs, currency options, and cryptocurrencies 

Successful currency trading is within your grasp. This accessible roadmap to trading mastery provides the foundational knowledge you need to create a structured, winning strategy and conquer the forex market.  

Currency Trading For Dummies Cheat Sheet

Foreign exchange (or forex) markets are one of the fastest and most volatile financial markets to trade. Money can be made or lost in a matter of seconds; at the same time, currencies can display significant trends lasting several days, weeks, even years. Most importantly, forex markets are always moving, providing an accessible and target-rich trading environment.

Articles From The Book

42 results

Currency Articles

Trade the Retest of a Breakout Level

When it comes to trading options, knowing how to look for breaks is key. For more details on a zoomed-out look at this, read How to Find a Breakout in Trading. One way to trade a breakout is after the break has occurred. You may not have noticed the significance of a particular technical level, or you may not have left orders in overnight to exploit a break. You turn on your computer the next morning to discover that prices have jumped higher overnight and feel like you’ve missed the boat. But you may still get a chance to trade the breakout if prices return to retest the breakout level. A retest refers to prices reversing direction after a break and returning to the breakout level to see if it will hold. In the case of a break to the upside, for example, after the initial wave of buying has run its course, prices may stall and trigger very short-term profit-taking selling. The tendency is for prices to return to the breakout level, which should now act as support and attract buying interest.

You can use these retests to establish a position in the direction of the breakout, in this case getting long on the pullback. The figure shows where you could have bought on the retest of the break higher in AUD/USD.

Credit: Source: eSignal
Note that prices did not make it exactly back to the breakout level. When trying to get in on a retest, you may consider allowing for a margin of error in case the exact level is not retested. You could also consider using a strategy of averaging into a position to establish a position on any pullbacks following a breakout. Here the averaging range would be between current prices and the break level.

You may get the chance to buy/sell a retest of a breakout level. The reason is that not every breakout sees prices return to retest the break level. Some retests may retrace only a portion of the breakout move, stopping short of retesting the exact break level, which is typically a good sign that the break is for real and will continue. Other breakouts never look back and just keep going.

But to the extent that it’s a common-enough phenomenon, you still need to be aware of and anticipate that prices may return to the breakout level. From a technical perspective, if prices do retest the breakout level, and the level holds, it’s a strong sign that the breakout is valid, because market interest is entering there in the direction of the break.

Currency Articles

Choosing a Broker for Currency Trading

Online currency trading is offered by dozens of different retail trading brokerage firms operating from all over the world, so you have many options to choose from. Here are some key questions to ask when you’re choosing a broker:

  • How good are trading executions? The key to evaluating any brokers is the speed and reliability of your trade executions. Are you consistently able to trade at the price you’re trying for? If you’re trying to sell, and your trade request fails, and you’re offered a lower price, you’re probably being requoted. (Requoting effectively means you’re trading on a wider spread than you bargained for.) Does your broker offer price improvement on limit orders? For stop-loss orders, the brokerage’s execution quality comes down to the amount of slippage experienced when prices gap following data or news announcements. You should expect some slippage on stop-loss order executions — the question is, “How much?”

  • How are orders filled? Find out exactly how your stop-loss or take-profit orders are filled. Is a stop-loss sell order filled when the bid price matches the stop price, such as a selling stop at 10 triggered by a price quote of 10/13? Are stops guaranteed? If so, are there any exceptions to such guarantees? What’s the policy for filling limit orders? Does the market bid price need to match the price of the limit order to sell, for example? A reputable broker will have clearly defined order execution policies on their website.

  • Are dealing spreads stable in all market conditions? Most forex brokers offer variable spreads these days. When market liquidity is high, the spreads will be tightest. During volatile market conditions and around major news events, spreads will naturally widen. However, the amount of variability can really differ among brokers, so make sure you understand how wide spreads can go when the market’s really moving.

  • Look on a broker’s website to see if they publish their execution statistics, which can give you more insight into their execution quality — including speed, the percent of trade requests that are successfully executed, and the opportunity for price improvement. Remember: Tight spreads are only as good as the execution that goes along with them.

  • What is the commission structure? Most online forex brokerages provide trade executions without charging trade commissions. Instead, the broker is compensated by the price spread between the bid and the offer. A few brokers offer a commission-based pricing structure coupled with narrower trading spreads. If the brokerage charges a per-trade commission, you need to factor that cost into your calculations to see if it’s really a better deal than a spread-based commission.

  • How much leverage does the firm offer? Too much of a good thing? In the case of leverage, yes. Over the past several years, the maximum leverage available to retail traders has been reduced by regulators. For example, in the United States, the maximum available leverage is 50:1. In some markets outside the United States, such as the United Kingdom and Australia, 200:1 leverage is available. Generally speaking, firms offering excessively high leverage (higher than 200:1) are not looking out for the best interest of their customers and, more often than not, are not registered with a major regulatory body.

  • What trading resources are available? Evaluate all the tools and resources offered by the firm. Is the trading platform intuitive and easy to use? What charting tools are available? What newsfeeds are available? Do they provide live market commentary on a regular basis? What type of research does the firm provide? Do they offer mobile trading? Are you able to receive rate alerts via e-mail, text message, or Twitter? Are there iPhone/iPad apps? Does the firm support automated trading? Does the platform offer robust reporting capabilities, including transaction detail, monthly statements, profit-and-loss (P&L) reports, and so on?

  • Is 24-hour customer support available? Forex is a 24-hour market, so 24-hour support is a must. Can you access customer service firm by phone, e-mail, and chat? Are the firm’s representatives licensed? Knowledgeable? The quality of support can vary drastically from firm to firm, so be sure to experience it firsthand before opening an account.

  • Is the firm regulated, with solid financials? In the United States, online currency brokerages are regulated by the National Futures Association (NFA), which is the self-regulatory body subject to Commodity Futures Trading Commission (CFTC) oversight. Other geographies with solid regulatory frameworks include the United Kingdom/Europe, Australia, Japan, Hong Kong, and Singapore — ideally you should trade with a broker that is regulated by at least one of these regulatory agencies.

  • Who runs the firm? Management expertise is a key factor, because a trader’s end-user experience is dictated from the top and will be reflected in the firm’s dealing practices, execution quality, and so on. Review staff bios to evaluate the level of management and trading experience at the firm. If the brokerage doesn’t tell you who is running the show, it may be for a reason.

Currency Articles

Identifying Currency Trading Opportunities and Creating Trading Plans

Identifying trading opportunities and planning each trade from start to finish is essential to success in currency trading. When you trade currency as an investment tool, remember to:

  • Maintain trading discipline by formulating — and sticking to — a complete trading plan: position size, entry and exit (stop loss and take profit) before you enter a trade.

  • Always trade with a stop-loss order. Decide on the stop loss before you’re in the trade and don’t move it unless it’s to protect profits.

  • Identify trade entry and exit levels in advance through technical analysis.

  • Understand how each currency pair’s prices move and what drives the prices.

  • Determine position size based on the trade setup and your financial risk-management plan.

  • Be patient — currencies move around a lot. Wait for the market to allow you to enter your trade strategy.

After you’ve invested your time, energy, and risk capital in a trade, your work has only just begun. Managing your trade while it’s active is just as important to a successful outcome. Stay alert, be flexible, but stick to your trading plan.