Forex trading is rapidly gaining popularity because it is an easy way to earn a decent amount of money if you know the right techniques. As a beginner, you should have the complete knowledge regarding basics of forex trading and pricing so that you can place your first trade properly.
Forex means forex exchange also called currency market. Forex is the largest form of trading in the world and every day $4 trillion are traded. It is open for everyone whether you are a rich investor or an employee.
Currency trading explained
Forex exchange is very simple. Like any other business you are supposed to buy the currency at one rate and sell it at a higher value. In order to gain some profit, you have to assure that you buy it at the lowest possible cost. There are some confusions because the rate of one currency might change according to the rate of other. You can take the example of the British pound that is equal to 2 US dollar only if the USD and GBP exchange rate is exactly 2.
To make it easy for the individuals to understand the rate of different currencies, in Forex trading the currencies are paired. It means that the comparison and rates of both currencies will be easier to understand. That is why most of the traders will always invest in the pair instead of buying the currency alone to assure that they will get the best possible rates.
Some of the most famous and commonly traded pairs for Forex exchange are.
It is not a hard and fast rule that you have to trade with the most common or famous currencies. There are many other types of currencies available that you can use like
- Mexican peso
- Polish zloty
- Norwegian krone
Currency trading explained by experts say that such unknown currencies are not very famous and so the market is not liquid about them. This is the reason that if you will properly trade with these currencies the chances of earning a profit will increase.
How the currency movements take place
Everyone knows that the exchange rates changes because of the value of the currency change. Most of the changes that take place in the rates of the currencies are determined by the expert traders. It all depends on how much pairs are bought and how people are making the judgments regarding the worth of the different currencies because that is the best way to make the right decision.
The speed at which the prices change varies according to the market. It all depends on the global events and the news. A Forex trading advice is that you should focus on the key factors that include the economic and political stability, monetary policy currency intervention and serious events like natural disasters.
How Forex trading works
As we already explained that in Forex trading there are pairs of the currency. The trader is to select the best forex trading platform, the one he is most comfortable with. The next step is predicting the exchange rate between different currencies. If you think that within a few days that value of US dollar will increase as compared to the pounds than you should invest in dollars. It means that you will be ditching the pounds.
If your prediction is right you will earn a decent profit. On the other hand, if it was wrong you should get ready for the loss. One of the biggest reasons that Forex trading is so popular is because the market is accessible 24/7 regarding the time zone of different states.
Forex exchange strategies
Like some other value, the value for a forex match comprises of an offer cost at which you can offer the lower end of the value and an offer cost at which you can purchase the higher end of the value. It is essential to note, that it may for each forex match, which path around you are trading.
While purchasing, the value dependably mirrors the cost of purchasing the main money of the forex combine with the second. So an offer cost of 2.4000 for EUR/USD implies that it will cost you $2.40 to purchase €2. You would purchase on the off chance that you surmise that the cost of the euro against the dollar will rise, that is, whether you figure you will later have the capacity to offer your €2 for more than $2.40.When offering, the value gives you the cost of offering the principal cash for the second. So an offer cost of 2.4000 for EUR/USD implies that you can offer €2 for $2.40. You would offer on the off chance that you surmise that the cost of the euro will fall against the dollar, so you can purchase back your €2 for not exactly the $2.30 you initially paid for it.
Learn to calculate the profit and benefits
Assume the value of EUR/GBP will be 0.7141-0.7514. On the off chance that you think the cost of the euro will ascend against pound you would purchase euros at the offer cost of 0.7514 for every euro. Say in this situation you purchase €20,000 at a cost to you of £7514.The value of EUR/GBP ascends to 0.8523-0.8353 and you choose to offer your euros over pounds at the offer cost of 0.8523.
The €30,000 you beforehand purchased is presently in this manner sold for £8523. Your benefit on this exchange is £8523 less the first cost of purchasing the euros £7514 which are £217.
Note that your benefit is constantly decided in the second cash of the forex pair. It is important that every trade you select has been wisely planned so that you will not have to suffer from the loss that comes with it. you have to be slow because rushing into the selection of currency pairs will cause some major issues. Take it slow to win every trade.