Forex trading is a financial activity based on the exchange of currencies, but learning to trade requires time and study. Forex trading means trading within the foreign exchange market, which is decentralized and operates worldwide.
Within the market currencies that have a conversion rate are traded, for example: if a pair such as EUR/USD has an exchange rate of 1.10, this means that 1 euro is worth 1.10 US dollars. On the other hand, more than 5 trillion dollars are moved daily in this market, which helps to carry out operations between countries.
It should be noted that the Forex market does not work on weekends and operates from Monday to Friday all day long. The market opens in Sydney early on Mondays and closes on Fridays at dusk in New York.
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How to trade Forex?
Forex trading is one of the 5 ways to make money on the Internet and if you work smart you can achieve great results. When you start on the platform you are known as a trader and you are going to invest money in something that you think will go up in price and you will make a profit.
An example of this would be buying euros with dollars, the euro has a value of 1.2358 USD and the trader after a market analysis thinks that the value is going to increase. The next day the price rises to 1.2758, the trader places a sell order and makes a profit of 400 pips.
Profits within the platform will be determined according to the trader’s investment. The higher the investment volume, the higher the profit.
Now we will explain a series of fundamental elements within Forex Trading:
In this currency market a concept known as currency pair is used and they are shown as follows: NZD/USD, EUR/USD, AUD/USD. This pair will be displayed with two values at the end of the pair signifying the bid or sell price and the ask or buy price.
These values are shown as follows: EUR/USD 1.22576/1.22598 and explains that to buy 1 euro you need 1.22598 which is the bid price and to sell 1 euro you will receive 1.22576 which is the ask price.
If you want to buy dollars and sell euros, when you are inside your broker’s platform you select the option to buy and the broker takes a part of your funds as insurance of the operation. Then you analyze the market and when you feel it has moved to where you want it to go, you close the order.
You should only close the order when you have taken profit from the trade, i.e. the euro increased its value against the dollar. After that, the broker will sell your euros that increased in value and you will get more dollars.
When you place a buy order on any pair, for example USD/EUR, a part of your funds are taken to buy the base currency of the pair which would be the USD and sell the currency you want which would be the EUR. In order to make a profit the price must increase.
The broker executes the transaction which is called placing a buy order and the platform communicates it to the Forex interbank market. As soon as the trader considers that the price satisfies him, he will close the order. Then the broker makes the opposite operation, which would be to sell dollars and buy euros.
The process is totally opposite and is called short trade. The trader opens the sell order, once he has made an analysis of the market and considers that the price of his asset is going to decrease. When the trader sells, he/she keeps the profits and places a buy order again.
It is known as the smallest value of change in a price and is a popular term in Forex. With this value traders estimate the profit or loss they make per trade.
It is the amount of money that a trader invests. If a trader opens a 1000 EUR position and the EUR/USD exchange rate is 1350 USD, the trader would be trading with 1350 USD. If the trader has 2000 USD then the 1350 USD are retained and they are known as margin.
With these concepts you can already operate within the Forex Trading, you only need to use the services of a broker of great recognition and make your investment there. It is important to remember that these operations are high risk and are subject to market volatility. For this reason, you should only invest the money you are willing to lose and not invest your life savings.