Trading forex – The basics

Forex Trading is speculating on the value of one currency against another. I appreciate from my experience that people would normally picture the transaction process of a bureau de change when forex trading is mentioned. Similarities may be drawn just to get a general idea of the concept; however forex is traded online (over the internet). There is no physical exchange of money, it’s a numbers game.

You buy a currency (the value) in anticipation that it will increase against another. You start to profit if there is an increase in the current price from the initial price you bought at. You also start to lose if there a decrease in the current price after you have bought. Likewise, you sell a currency (the value) in anticipation that it will fall against another, you start to profit if the price falls from the initial price you sold at. You also start to lose if there is an increase in the current price. You can initiate trades from both sides (buy and sell). The idea is not to buy low and sell high, it is to buy high to sell even higher and to sell low to buy back even lower.

Currencies are paired and never talked about in isolation; they are relatively valued meaning its one against the other. So for example EUR/USD represents the value of a EURO against the dollar. When you buy the EUR/USD, you are anticipating that the EURO to rise against the dollar, so you are buying (going long) the EURO and simultaneously selling the dollar. The reverse is also true, when you sell (go short) the EUR/USD, you are anticipating that the EURO will fall against the dollar, so you are selling the EURO and buying the dollar.

Be abundantly blessed!

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