What is the Forex Market?

Mitigating Risk: Stop-Loss Orders

By following along so far, you should now have a solid understanding of basic orders like buy and sell, as well as market and limit orders.

When it comes to managing your trading capital, stop-loss orders are an essential tool. They allow you to automatically close a trade at a pre-set level, helping to limit potential losses.

Below is an example of how a stop-loss order could be used in a forex trade:

• Imagine you’re trading the CAD/AUD pair.
• You place a buy order at 1.0710, and you decide you’re not willing to risk more than 2% of your position.
• To protect yourself, you set a stop-loss order at 1.0495.
• Two hours later, the CAD/AUD value drops to 1.0281, marking a 4% decrease in price.
• However, your broker executes the stop-loss order at 1.0495, as you had set it.
• Thanks to the stop-loss, instead of suffering a 4% loss, you only incur a 2% loss, as planned.

Automatically Lock in Gains: Take-Profit Orders

Similar to stop-loss orders, take-profit orders enable you to set a target for your trade. While stop-loss orders help minimize potential losses, take-profit orders allow you to secure your profits.

Here's an example of how a take-profit order would work in a different hypothetical trading situation:

Maximum Forex Stakes

When managing your trading bankroll, it's important to consider the maximum amount you're willing to risk on each trade. It's often easier to think of this in terms of a percentage rather than a specific dollar amount. To clarify this concept, a solid money management strategy involves only risking what you can comfortably afford tolose. Many traders adopt a rule where they risk no more than 1% (or even less) of their account balance on any single trade.

For instance, if your account balance is $2,000, it would be wise to risk no more than $20 on a single trade. Your account balance will naturally fluctuate as you experience both gains and losses. However, by limiting your risk per trade, you reduce the likelihood of losing your entire account due to one poor decision.

Tried and Tested ForexMarket Strategies

No discussion about forex trading would be complete without addressing strategies. Once you have a solid understanding of how forex trades work—such as knowing what to trade and how to place an order—you’ll need to focus on defining your trading objectives and selecting a strategy to guide your approach, at least initially. Having a clear strategy in place will help you stay disciplined and make decisions based on logic rather than emotions. To help you get started, we’ve compiled a list of some of the most commonly used trading strategies inthe global forex market.

Forex Day Trading

Day traders in the forex market typically keep their positions open for less than a day—hence the term "day trading." This can mean closing a trade within minutes or hours.
Day trading usually involves executing multiple trades throughout the day, often using leverage. While the gains per trade tend to be smaller, the frequency of trades means profits can accumulate steadily over time. One key advantage of day trading is that these traders avoid overnight financing fees, which we will discuss in more detail late

Forex Scalping

Forex scalping is one of the more challenging strategies to master and is typically favored by experienced traders. The goal of scalping is to capitalize on small price fluctuations that occur throughout the trading day.
This strategy often involves placing a large number of orders within a short period, sometimes just hours. As the name suggests, scalpers "scalp" small profits each time a forex pair moves within a defined range.
Despite the small gains per trade, scalping is still considered a relatively low-risk strategy—especially when combined with tools like take-profit and stop-loss orders. Although each individual profit may seem minimal, when executed consistently and effectively, these small gains can accumulate into a successful trading week

Forex Swing Trading

If you're a beginner, forex swing trading could be a good option to consider. Essentially, swing trading is well-suited for short-term traders who want more flexibility in their approach to the forex market.
Swing traders typically hold positions for anywhere from one day to two weeks, and sometimes even months.
The flexibility of swing trading comes from its focus on capturing trends in the market—trends that can last anywhere from hours to several months. By riding these price movements, swing traders aim to profit from short- to medium-term market shifts.

Forex Demo Accounts

Demo accounts are an invaluable resource, not just for beginners, but also for experienced forex traders. The key advantage is that online brokers offering demo accounts provide a trading environment that closely simulates real-market conditions. On top of that, you'll be given virtual funds—essentially demo money—to trade with.
This setup allows you to test out new forex strategies as much as you like, or simply get familiar with the market without any financial risk. It's an excellent way to build confidence and refine your trading skills before committing real capital.
Using Signals and Automated Forex Market Systems
Earlier, we touched on the fact that there are alternatives for traders who may not yet fully understand technical analysis and price charts in forex trading—or for those who simply don't have the time or resources to master them.
If you're not familiar with these tools, don't worry. In this section, we'll explore signals, mirror trading, and trading robots, which can serve as helpful shortcuts for those looking to navigate the market more easily

Mirror Trading the Forex Market

Mirror trading is a powerful feature that allows you to copy the trades of an experienced trader. In simple terms, any currency pairs they trade will automatically be reflected in your own trading portfolio.
For example, if you decide to copy a forex trader who allocates 0.4% of their portfolio to AUD/USD and 0.3% to GBP/USD, then 0.7% of your portfolio will also be dedicated to those same currency pairs.
One of the best platforms for mirror trading is eToro. It offers a wide range of skilled traders to choose from, each witha proven track record. You can view their performance stats—such as their returns, preferred forex pairs, and average trade size—before deciding to copy them. On eToro, you can start mirroring a trader with as little as $200.

Automated Trading Robots in the Forex Market

Forex automated robots, also known as Expert Advisors (EAs), are designed to take the hands-on work out of trading by automating the entire process. In essence, these robots allow you to trade passively, as the algorithmic software handles everything for you.
Here's how it works: Unlike the "copy trading" feature where a human places the trades, an EA uses automated algorithms to scan the market 24/7 and execute buy and sell orders on your behalf. One of the keyadvantages of using an EA is that it removes emotional biases from trading—something humans often struggle with—while also allowing the software to operate around the clock without needing rest or sleep.
To start using a forex robot, you’ll typically need to choose a provider, sign up, and download the software. After that, you upload it to a third-party platform like MetaTrader 4 (MT4). Be sure to check that your broker is compatible with MT4 before you sign up.
While EAs can be a useful tool, it's important to remember that there are no guarantees when using automated systems. To get a feel for how a forex robot works, it's a good idea to start with a demo account before committing real money.