Forex trading is a popular form of trading which involves buying or selling one country’s currency by selling or buying another currency. It is also known as the foreign exchange market. The major currencies on the foreign exchange market are the American dollar, the British pound, the Swiss franc, the euro and the Japanese yen. The foreign exchange market is currently regarded as the top global financial market. When you exchange one currency for another in Forex trading, you are looking for price movement. Ideally, the currency you buy you expect will increase in comparison to the currency you have sold. For example, if you buy 10,000 euros at the exchange rate of 1.1800 from American dollars, then two weeks later the exchange rate increases to 1.2500 and you exchange back into American dollars, you profit from $700. The exchange rate for currencies is a ratio which calculates the value of one currency against another.
Currencies are quoted pairs e.g USD/JPY. Currencies are quoted in pairs, as for each foreign exchange transaction, you buy one currency whilst simultaneously selling a another currency. The first issued currency is the base currency and the second listed currency is known as the counter currency. As a trader, you need decide whether you are going to buy or whether you are going to sell. The base currency is the basis on whether you buy or sell. If you decide to buy a currency pair, then this will be because you predict that the base currency will increase in value, compared the counter currency. If you choose to sell a pair, it is because you expect that the base currency will lose value relative to the counter currency.
If you intend to buy a currency pair, then the next step is sell it at a higher price. This is known as ‘going long’ or ‘taking a long position.’ If you want to sell are currency pair, then you will need to buy the pair back at a lower value. This is called ‘going short’ or ‘taking a short position.’ When you have considered all options and know the direction you are going to take, the next stage is dealing with the bid price and the ask price. Forex quotes are issued with two prices, the bid price and the ask price. The bid price is often lower than the ask price and is generally the best available price at which you will sell your currency to the market. The ask price on the other hand is the best available price which you can buy from the market.
It is important when learning how to trade Forex that you know what you are doing by researching markets and considering different systems which successful traders use. You should keep your trades simple and go slowly but you should also be willing to take risks. When trading the Forex you should ignore the majority and stick will small amounts of money when investing.
Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.