For the new trader, it’s all too easy to get confused by the information that’s flying across the computer screen. Understanding what goes on during an average foreign exchange trade (also called a forex trade) will provide a number of insights. Long before the trader clicks on the button to buy or sell, there is a lot that takes place behind the scenes.
Step 1 – The Set Up
Before the trade, everything must be in place. The trader has opened an account for trading the forex and deposited an amount of money. He or she has installed a forex trading platform on the computer that the trader controls and manipulates where and when to place specially allocated forex funds. The trader has done enough research to know whether they want to buy or sell a particular currency. And, lastly, the trader has received the cue to make the trade via forex signal or has decided to make a trade independent of a signal.
Step 2 – The Position
The next step in this process is the entry into a position. The position is the point where the trader wants to make a trade. Is the trader buying or selling? Is the trader going long or short? What will the stop loss and take profit points be? These are just a few of the factors that a trader would use to determine the position.
Step 3 – The Motion Phase
Once all pieces are in place, click on the ‘execute’ button and watch! Actually, the trader no longer needs to do much of anything – at this point, everything is automatic. The order is submitted to the market via your account on your broker’s server. From the broker’s server, it is sent to interbank market server. This could take anywhere from a second or two, to a few minutes.
Step 4 – The End Phase
This is where the trade ends. Unless the trade is halted manually, the result will be a profit or loss within the parameters previously set. The trader knows how much he or she could gain or lose.
If this process proves to be too daunting for a newbie forex trader, there are options. Your favorite broker may offer a managed forex account where they actually perform the trades with your money, while you can watch from the sidelines until you get comfortable.