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After understanding What Forex is, we will move on towards digging deep into making money in forex step by step in current and upcoming articles.
Execution of your desired trade in Forex is very similar to what we do in other financial markets(like in the stocks market). If you possess prior knowledge of different financial markets, you will quickly grasp forex concepts. But if you are starting your journey, you will still be able to get hold of new ideas as long as you digest all the material available in our beginner’s section.
In the forex market, we exchange one currency with the other in the hope of making some profit. We need to make sure that the currency we will buy will increase in value compared to the currency we are selling.
Let us assume you have purchased 5000 euros at the EUR/USD exchange rate of 1.1900; Your account balances will look like this.
EUR = +5000 (Positive sign indicates you have bought 5000 EUROS)
USD = 5000 x 1.19 = -5950 (Negative sign indicates you paid 5950 USD from your account to buy 5000 EUR)
After two weeks now, you see the EUR/USD pair trading at 1.2500.
You immediately sell your EUROS, and your balances will look like this.
EUR = -5000 (Negative sign indicates you have sold your EUROS to buy back USD)
USD= 5000 X 1.25 = +6250 (Positive sign indicates that bought back your USD)
So your profit in this trade is basically,
Profit = 6250 – 5950 = 300 USD
Here is everything depicted in the form of table
|You purchase 5000 euros at the EUR/USD exchange rate of 1.1900||+5000||-5950|
|After two weeks, you sell your euros at a EUR/USD exchange rate of 1.2500||-5000||+6250|
As you just saw above, the exchange rate is simply the value of one currency against another currency; for example, the EUR/USD exchange rate indicates how many USD will be required to purchase 1 EUR.
You have always noticed the in forex. All currencies are quoted in the form of pairs. The reason for this is in a foreign exchange transaction; you are always selling one currency to buy another currency. You might be wondering how do I know which currency I am buying and which currency I am selling?. This is where you need to understand the concepts of Base currency and quote currencies.
In forex trading, whenever you are executing a trade, you are basically exchanging one currency for another.
All currencies have a relation to one another. Let us understand this concept through an example.
In GBP/USD pair, the currency which is listed to the left of / is called Base Currency(GBP), and the currency listed after the / is called Quote Currency(USD).
The base currency is used as a reference, and its value will always be 1(GBP, in this example ). The currency on the left is called quote currency(USD, in this example). When trading, the exchange rate tells you how much you need to pay in terms of the quote currency to buy ONE unit of the base currency.
In our example above, the EUR/USD was trading at 1.1900, which means in order to buy 1 EUR, you must pay 1.19 USD.
Hopefully, by now, you understand what Forex trading is, what currency pairs are, and what are base and quote currencies.
Almost all starters wonder, Can I trade Forex with $100?
The answer to this question is you can even trade in Forex with even $10.
As you saw above, Forex is not rocket science. It is an exchange of currencies, be it $10 or $10000. The real thing to consider is how much risk you want to take and how much profit you hope to make.
To beginners, we always recommend starting with small amounts of money. But if you just want to practice around, you can use demo accounts that cost $0 and get your concepts straight.
Well, by fast, if you mean getting your funds doubled overnight, it is possible. Then you also have to be ready to lose all your funds, as well as you are playing on margins of extreme risk. So it’s always good to understand and digest Forex concepts and strategies one by one and learning to manage risk. So unless you are a pro trader, we will never suggest you take big risks in the beginning.
The expectation that you bring with you in trading is often the greatest obstacle you will encounter.Yvan Byeajee
Note: All the viewpoints here are according to the rules of technical analysis. we are not responsible for any type of loss in forex trading.
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