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Guide to Live Forex Forward Trading
Forward Trading with Forex Live
You may be asking what a forward trade is. This is also a very simple concept much like day trading. When doing a forward trade in easy forex, you can choose to do a trade at a future currency rate. This is a lot like a limit order in the stock market. What happens is when the future rate is met, your buy order or sell order will automatically process and the trade will complete. If the trade doesn't meet your set rate that you wish to buy at or sell at, then it will expire at a defined date or at your stop loss or profit taking rate comes.
We will begin this tutorial with demonstration of an importing and exporting company. For example, if this was the case, you would be interested in future changes in the foreign currency rates as most people would too. You can control the results of price fluctuations at easy forex and the specific future rates. First, let's assume you want to select a rate to buy $10000 at any point in the future. For now we will choose 60 days.
Learning how forward trading works
First off, we will begin by putting a buy order of 10000 US Dollars and will be using the Euro as the foreign currency to sell in. This will happen 60 days from now at a rate of 1.070 USD/EUR, which is 1.07 US dollars per 1 Euro. Now that you have a plan of what forward trade you are about to execute, you may begin putting your values into the platform.
The first thing you do when entering your values is picking your currencies. We already know we are using USD and EUR. So you want to buy with US dollars and sell in Euros. After you have selected these two options, the current foreign exchange currency rate will show up instantly in the Spot Rate box. In this guide, we will say the rate is 1.074.
Choose your date for forward trade
After you have the current exchange rate and currency type chosen, you now will be asked to choose what date from the calendar box to perform your forward trade. This is the day when you want to buy and we'll assume it is 60 days from now. After you have done this, a forward point and forward rate will automatically be calculated in the boxes listed. In this example, we will say the point is (-40) and the rate is (1.07). Basically, these numbers are just differences in both currencies interest rate for the date you have chosen as your forward date.
Amount of money to perform a forward trade
The next step in this tutorial is to choose what amount of money you want to buy with and what amount you are willing to risk. As earlier in this demonstration, we have chosen our forward trade amount to be $10000. So enter 10000 into the amount in USD. Next choose what you would like to risk and that will be your stop loss. For now we will risk 200 and this amount will be selected in Euros.
As we have learned from the previous tutorial, a stop loss is a safety net to your investment. If your trade goes bad, you can only lose a maximum of 200 Euros or whatever your stop loss amount is that you have chosen. Now once you have chosen a stop loss value for your forward trade, a stop loss exchange rate will appear automatically and this is the rate that must be reached before your investment automatically sells to prevent any more loss than 200 Euros. In this example, we will assume the stop loss rate is 1.09.
Completing forward trades with easy forex
Once you have your forward trade set, you will be given information regarding your funds for your trade. You will be notified of three things. First, you may be told that you have funds in your account and that by pressing accept, the money from your account will be used to fund the forward trade transaction. The second message you may receive is you have a credit balance but it isn't enough to complete the trade that that the remaining funds will be taken from your credit card account. The last message you may receive has to deal with the fact that you may need to register a credit card before the trade can go through.
After you have accepted the trade details, you will then be able to process the exchange deal. The first thing you do is freeze the rate at which you want and you will be given a few seconds at which the rate will be locked in for you. During this time you may accept the offer and complete your trade otherwise you may back out and cancel any trade as well. After you accept the bid or ask offer, the trade will be in progress and that is all there is to it.
How to make money on a forward trade
OK, this basically wraps up this tutorial and guide through the forward trading process. Now let's see the results and explain how you make money. What you have done in this trade is selected an foreign exchange currency rate of 1.07 for 60 days from now. Here is some examples of results that will happen so you can understand how to make money.
Imagine that the exchange rate becomes 1.10 at a date 60 days from now. This is higher than your decided stop loss rate of 1.09. In this case, you have lost the 200 Euros that you were willing to risk. If you didn't have this stop loss, you would have lost a lot more! Basically your entire investment sells automatically at this stop loss rate to prevent greater loss. Now imagine that the exchange rate ended up being 1.08 instead. You would have only be down 100 Euros.
A stop loss limits your losses but your potential gains are limitless, so you can make a lot more than you can lose if you set your stop losses wisely. Now let's say in 60 days the exchange rate is 1.02, this is well below the rate you have bought at so you would make a huge 500 Euro profit! This is basically how the forward trade works.
If you would like more tutorials or more learning guides to trading forex you can visit their website at Easy Forex. You may also read the free online book on how to do forex here and also sign up and create an account. Don't forget that you can sign up and trade with as little as $50 at easy forex! You may also use a credit card or paypal to deposit funds into your account, which makes it even easier. No wonder they call it Easy Forex!