Forex trading is not a trade with fools, in order to grow in your Forex trade one needs to know and learn how to do trade because it’s not everybody’s cup of tea.
There are some basics that you need to know in order to trade successfully and grow your accounts.
Forex stands for foreign exchange which means to change your currency for another country’s currency. For example, if you want to visit a foreign country for a vacation, you’ll go to your local bank and you’ll change your notes to the currency of the country that you’re visiting. When you’re doing that, you are actually doing a foreign exchange transaction. The foreign exchange market is the greatest market in the world. It has a daily volume of about 4 trillion dollars. The main participants of the foreign exchange market are the global banks and their customers.
People exchange money for reasons like, commercial companies exchange money for hedging or for commercial activities or people exchanging money if they want to travel or for any other reason. In Forex trading, we obviously don’t exchange money for vacations!!
What do we do with the trading platform??
On a trading platform, we are doing something called speculation. The trading platform shows us the exchange rate between two currencies and what we’re doing is, we are trying to speculate if the exchange rate is going to rise, or it’s going to fall, and then we start trading- and if our speculation is correct we win money. If our speculation is wrong, we lose money.
We have a Market watch, which shows us all the currency pairs available for trading. The most famous pair is the EURO versus USD. The information window has two currencies, every Forex pair displays two currencies. EUR USD means Euro Vs USD. The first currency is called the base currency and the second currency is called the quote currency. The exchange rate shows how many units of quote currency you can buy with one unit of base currency. However, for every currency pair we see two exchange rates.
Why is that?
It’s because the way banks and brokers make money from the customers who trade FOREX. They will buy currency from you at a slightly lower price and they’ll sell a currency to you in a slightly higher price and thus making the difference between the rate to buy and the rate to sell. The difference between the price to buy and sell a currency pair is called the Spread. Spread is denoted as pips.
Now, what possibly are you supposed to do in order to make money!!
This chart right above in the featured image is the EURUSD chart. This chart shows the current exchange rate and the past exchange rate of the symbol. The reason we need the past exchange rate of the symbol is because it helps the traders to speculate better about the future exchange rate.
The basics of the Forex trading are rather simple. You see the exchange rate between the two currencies on your chart. If you believe that the exchange rate is going to go up, then you buy the currency pair. If you believe that the exchange rate is going to go down, then you sell the currency pair.
EUR Vs USD
The chart goes up if the base currency is gaining strength and the chart goes down if the quote currency is gaining strength.
Why do traders use pip and not the actual money..
As every trader has a different take profit and volume i.e. if a trader will say to the other trader that he made 1000 Euro’s, It doesn’t depict if it was a good trade or a bad trade. However if a trader will say to another trader that he made 50 pips from a trade, The other trader will understand how much of an exchange rate did he get for his own benefit.
These are some of the basics about the Forex trade and if one wants to trade and is still new in this market, they should be acquainted with such terms in order to fit in and actually get what’s going on whilst trading.