For beginners Forex trade might be a little bit difficult as those involved in it might be finding it difficult to comprehend how the whole Forex trading process works or if it has profit in.
The main reasons why many of those who try to venture into a trading career leave disappointed and empty handed is due to false motives, unrealistic goals, greed, inappropriate haste, lack of effort and insufficient knowledge.
There are foreign exchange trading strategies you should always know.
Here’s an example of a How FOREX trade works.
You decide to buy 1 000 euros against US dollars. The EUR/USD exchange rate at which you can BUY at this moment is 1.4500 so you pay $1 450.
Later, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.5500. You sell your €1 000 and get $1 550. Having started with $1 450, you now have $1 550 – you’ve made a profit of $100. Alternatively, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.3500. You sell your €1 000 and get $1 350. Having started with $1 450, you now have $1 350 – you’ve made a loss of $100.
Furthermore An exchange rate can change very rapidly, sometimes several times a second, so there’s a lot of action going on since the forex hours is active 24 hours a day, In general, the currency exchange rates reflect the health of countries’ economies. If the economies of the Eurozone are doing better than the US economy, the euro will go up compared to the dollar (EUR/USD ↑) and vice-versa.
How money is made or lost on the FOREX market.
If you look at the FOREX quotes on your trading platform you will see that there are 2 prices for each currency pair. One is the price at which you can buy, referred to as the “ask price”, and the other is the price at which you can sell, referred to as the “bid price”. The difference between those two prices is known as the spread. The ask price is always higher than the bid price.
If your FOREX broker offers you leverage of 1:100, you can trade with 100 times more money than your deposit. This means that if you want to buy 100 000 EUR/USD you only need to have EUR 1 000. With this leverage you can take a position with 100 times larger value, resulting in 100 times bigger profits or losses, therefore great care is required when placing your trade. Equities on the other hand are traded without leverage.
Make your first FOREX deal
To start: get a FREE Practice Account and log in. Then pick a currency pair (e.g. EUR/USD), choose a quantity and press the BUY button if you think the value will rise. Now you are a trader in a market used by millions of people all around the globe. You will earn money if the EUR/USD price goes up, and lose if it goes down.
Long and Short trades
In the above example, we bet that the EUR will go up against the USD so we bought EUR/USD hoping to sell it later at a higher price. This is called long position. But what if we expect that the EUR will go down against the USD? Well, then you do the opposite – you sell the EUR/USD, expecting to buy it cheaper at a later time. The short trading enables you to take advantage if the exchange rate is going down.