If you are unaware of the Forex trading and want to explore it, then this guide will assist you in understanding this market and how you can easily make money trading forex.
Forex is a giant international market where you trade currencies, to make fast profits.
In the forex market, the rapid exchange rate fluctuations allow traders to make money by buying low and selling high.
Let’s take an example to understand how it works, you have purchased 500 EUR for 510 USD, expecting that its exchange rate will change.
After two or three days, you analyze forex trends which indicates that it’s a perfect moment to sell.
You sell 500 EUR for 517 USD making profit of $17.
This is how you can make money trading forex.
How to get into the forex market?
A Broker provides you quick access to the market. A broker gets a tiny commission from your trades. It usually known as a Spread.
He can also give you leverage, thefunds that you can borrow to increase your deposit.
How to read currency Quotes:
In the forex market, currencies are always traded in pairs. For example
- Euro/U.S. dollar(EUR/USD)
- U.S. dollar /Japanese yen(USD/JPY).
Currencies are traded in pairs because on placing a trade you are buying one currency and selling another at the same time.
Let’s see how you can read currency quote at a glance.
The currency mentioned to the left is known as Base currency(in this example, the EUR) and the right one is known as Quote currency(in this example, the USD ).
- The Exchange Rate is the price of one currency for the purpose of conversion to the another.
- The quotation mentioned above means that you have to pay 1.14 dollars to get 1 euro. Conversely, you will receive 1 euro for 1.14 dollars.
- You would make money trading forex if you buy a currency pair when the Base currency is increasing relative to the quote currency.
- You would make money trading forex if you sell a currency pair when the Quote currency is increasing relative to the base currency.
Long position/short position:
When you buy base currency expecting that its value will increase so you can make a profit by selling it at a higher price. This is known as taking a long position.
When you sell base currency expecting its value will decrease so you can buy it again at a lower price, This is known as taking a short position.
- Simply, long refers to buying and short refers to selling.
Forex Bid and Ask:
The Forex quotes come with two prices, the bid and ask. The bid price is usually lower than the ask price.
The bid is the best available price to sell base currency.
The ask is the price you have to pay to buy base currency.
In the example mentioned above(EUR/USD), the bid price is 1.1407 and ask price is 1.1408 so 1.1407 is the best available price to sell base currency and if you want to buy you have to pay 1.1408.
Knowing when to sell or buy is a key factor in Forex trading, you can perform trend analysis in different ways. Trend analysis can help to predict whether its time to sell or buy
The fluctuation of currency rates depends on the country’s economic condition which is influenced by GDP rate(gross domestic product), unemployment rate, inflation etc.).For Example , the GDP rate of the US has increased; ultimately the value of the currency will also increase, That’s the best time to sell USD.
Follow economic/political news, get to know interest rates of different countries so you can take the right decision.
Forex chart Analysis:
Check for information on forex charts, It shows how the exchange rate of two currencies has changed over a certain period of time.
Basically, there are three types of charts.
- line chart
- Bar chart
The Line chart is simple and easy to understand. The launching pad for a beginner. Once you get command over line charts, you can consider bar or candlesticks.The line chart only shows closing prices over a time period. There is no trading range, opening prices etc.