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How To Profit From Forex Trading

How To Profit From Forex Trading

In the forex market to  buy and sell foreign currency  to pay.

Forex trading is easy. The mechanism of a trade is very similar to what is  seen in other  financial markets (such as  stock exchanges ). So if you have experience in trading, you have to learn it very quickly.


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And if that’s not the case, you can still learn it. Of course, if you have read the educational articles on our site, and finish our virtual Forex training school!

The purpose of Forex trading is to exchange one currency for another in the hope of  changing prices  in the future.

Better yet, in the hope that the value of the currency you bought will increase compared to the currency you sold.

Currency exchange rate is the ratio of the value of one currency against another.

For example, the USD / CHF conversion rate indicates how many US dollars a US franc can buy, or how many Swiss francs it takes to buy one US dollar.

How to read Forex prices?

 

Currencies are always priced in pairs, such as GBP / USD or USD / JPY

The reason they are quoted in pairs is that in every Forex trade, you are buying  one currency and selling another currency  at the same time  .

How do you know which currency to buy and which currency to sell?

That’s a good question! This is where the concepts of base currency and priced currency come into play.

 

Base currency and priced currency

 

Whenever you trade in Forex trading, it means you are exchanging one currency for another.

Currencies are priced relative to other currencies.

Here is an example of the exchange rate of the  British pound  against the US dollar:

How To Profit From Forex Trading

How To Profit From Forex Trading

The first currency to the left of the diagonal line (“/”) is known as the  base currency  (in this example the British pound).

Our reference for determining the exchange rate of a currency pair is the base currency. Which is always worth one.

The currency listed (the latter) on the right is called the opposite currency or the priced currency (in this example the US dollar).

When buying  , the conversion rate tells you that you need several priced currencies to buy one unit of base currency.

In the example above, you have to pay US $ 1.21228 to buy س 1.

When you sell  , the conversion rate tells you that in exchange for selling one unit of base currency, you will receive several units of priced currency.

In the example above, you will receive US $ 1.21228 by selling 1 British pound.

The base currency indicates how much priced currency is needed to receive a unit of base currency.

If you buy EUR / USD, it means that you are buying the base currency and at the same time selling the priced currency.

In very simple terms, “you buy euros, you sell US dollars.”

  • If you think the value of the base currency will increase relative to the priced currency, you will buy  this currency pair.
  • If you think the value of the base currency will decrease relative to the priced  currency, sell the currency pair.

Since there are so many currency pairs to trade, how do Forex brokers know which currency to list as the base currency and which as the priced currency?

Fortunately, the way currency pairs are  priced in the Forex market is  standardized.

You may have noticed that currencies priced as a currency pair are usually separated by a slash (”/”).

Just know that this is a matter of taste and the diagonal line may be replaced with a dot or a dash or removed altogether.

For example, some traders may label “EUR / USD” as “EUR-USD” or just “EURUSD”. They all mean the same thing.

What do “long” and “short” mean?

You must first determine whether you want to  buy or sell .

If you want to buy (which actually means buying the base currency and selling the priced currency), you somehow want to increase the value of the base currency and then resell it at a higher price.

In Forex, this is called a “long position”.

Just remember that: long  = buy.

If you want to sell (which actually means selling the base currency and buying the priced currency), you somehow want the value of the base currency to decrease so you can buy it at a lower price.

This is called “shorts” or “shorts position”.

Just remember:  shorts = sales.


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Felt or square

If you do not have an open position, this is called a “flat” or “square” position.

Closing the position is also called “squaring”.

Footnote: This term is rarely used.

 

BID, ASK and spreads

All Forex prices are offered at two prices: BID and ASK

In general, the BID price is lower than the ASK price.

How To Profit From Forex Trading 

How To Profit From Forex Trading

 

 What is BID?

BID is the price at which your broker tends to buy the base currency.

This means that BID is the best available price at which you (the trader) can sell to the market.

If you want to sell something, the broker will buy it from you at BID.

 

 What is ASK?

ASK is the price at which the broker sells you the base currency.

This means that the ASK price is the best price available at which you can buy from the market.

Another word for  ASK is the  bid price (offer).

If you want to buy something, the broker will sell it to you at ASK price.

 

What is a “spread”?

The difference between the BID price   and the ASK price is called the spread.

At EUR / USD in the example above, the BID price is 1.34568 and the ASK price is 1.34588. See how the broker allows you to trade with your money easily.

  • If you want to sell the euro, click on “sell” and sell the euro at the price of 1,34568.
  • If you want to buy the euro, click on “buy” and buy the euro at the price of 1,34588.

The difference between the buying and selling price is the spread. The  commission spread is the  Forex broker for trading.

The following image is a summary of today’s tutorial:

How To Profit From Forex Trading

How To Profit From Forex Trading

Now look at the following example and how to make a profit from a Forex trade:

How To Profit From Forex Trading

How To Profit From Forex Trading

In the example above, you bought 10,000 euros at a conversion rate of 1,1800. You paid $ 11,800 for the conversion rate.

One week later, the conversion rate reached ۵ 1,500. You sold € 10,000 and received $ 12,500 according to the conversion rate.

As you can see, you made $ 700 in this trade.


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