The international currency market, shortly called FOREX or FX, is a global trading system for different currencies. With a daily turnover of more than $ 5.3 trillion, it is the largest and most dynamic market in the world. At the same time, the FOREX market is working on extremely simple rules.
General information about the FOREX market
Whether you sell 100 euros to buy dollars at the airport exchange bureau while you are waiting for your flight, or a large bank sells $ 100 million against Japanese yen to another bank, and in both cases you have FOREX deals. FOREX players range from huge financial institutions that run billions to regular “home” investors who trade a few hundred dollars.
The volumes, dynamics and opportunities offered by the FOREX market are exceptional. There is the notion that this is the place that comes closest to the term “perfect market”. All market participants – from individual investors to the largest banks and professional investors, trade on equal terms, have access to the same information, and for all the market offers unlimited liquidity – you will always be able to buy and sell, and there are no restrictions on entry or Exit the market.
Online FOREX trading
In recent years, thanks to the Internet, the FOREX market is no longer a reserved territory for big players, but has become accessible to anyone with a computer and several hundred leva to invest.
How is trading on the FOREX market?
On the FOREX market, currencies are exchanged against each other. The main and most important thing in this type of trade is the exchange rate of the two currencies. You’ve probably seen it at least once in the news:
CURRENCY TWO EXCHANGE RATE
EUR / USD 1.4515
GBP / USD 1.6430
The exchange rate changes almost every second, so trading is very dynamic and active 24 hours a day, five days a week. In general terms, the exchange rate reflects the health of an economy.
For example, if the European economy develops faster than the US economy, then the euro will rise against the dollar (EUR / USD ↑) and vice versa.
How to Make Money on the FOREX Market
Here’s an example of what a FOREX deal is: You decide to buy 1 000 euros for dollars. The EUR/USD exchange rate you can buy at the moment is 1.4500 and you pay $ 1,450. Ten days later, the EUR/USD exchange rate at which you can sell is 1.5500 and you will receive $ 1,550. Starting $ 1,450, you already have $ 1,550, which means you have made a profit of $ 100.
This is the way money is earned on the FOREX market. In practice, you can perform this operation with a few mouse clicks on your home computer.
You will notice that for each currency pair two prices are given. One is the price at which you can buy the currency pair and the other is the price at which you can sell it. The difference between the two prices is called “spread” and represents the broker’s profits from each transaction you make. You have to remember that when you buy a currency pair you actually buy the first currency and sell the second currency.
The advantages of leverage
Or how to trade 100 times more money than you have.
Here’s one of the most interesting things about FOREX trading. If your FOREX broker offers a leverage of 1:100, that means you can trade 100 times more money than your deposit. In fact, you can buy 100,000 EUR/USD, with only € 1,000 on your account. The rest of the amount is in the form of a loan from your broker. Thanks to leverage, you control 100 times more funds, which means 100 times more profits. Of course, loss can also be 100 times greater, so it’s important to be careful when trading. Simply put, leverage multiplies your scores by 100.
The money you deposit on your account serves as a deposit to cover your potential losses. In this sense, while your profits are unlimited and have no upper limit, your losses are limited to the amount of your deposit. This way, you will never get into a situation where you have a negative balance on your account and you owe money to your broker.
How to Make Your First Forex Deal
To do so, you need to register and open a free demo account. You get virtual $ 10,000 to exercise and train. Then you choose a currency pair (eg EUR/USD), enter a quantity, press BUY and that’s it. You just made your first deal by buying EUR/USD. In this case, you will win if the euro rises against the dollar. You can keep this position open as long as you like. When you decide that it does not make sense to hold this position anymore, press the X button in the Open positions window to close it. The result of this transaction will add to the funds on your account.
Long and Short positions
In the above example, we bet that the euro will appreciate against the dollar, so we bought the EUR / USD, hoping to sell it in time at a higher price. This is an example of Long Position. If we expect the opposite to happen – the euro will fall against the dollar, we will first sell EUR / USD so we can buy it in time at a lower price. This is an example of Short Position. Here’s how it works:
You expect EUR/USD to go down in the coming days, and SELL 100,000 EUR/USD at 1.4312. You will have an Open Short position – 100,000 EUR/USD at 1.4312.
After a while, you buy 100,000 EUR/USD at 1.4282. So you close your position and add $ 300 to your account. It is important to remember that your winnings and losses are always calculated in the second currency of the pair. In this case, your profits are in dollars.
In short, short positions allow you to earn from the fall of a course.
What are Waiting Orders and how to use them?
Pending orders are used when you want to make a deal, but you are not able to stay standing at the computer at all times. When placing a pending order, it will be executed automatically when the price is reached from the market, and you will have an open position. Likewise, you can close an existing position. Pending orders that would close your winning position are called Limited Orders. Those that keep you from rising losses by closing your position at a certain price are called Stop orders. Only one is the variable you need to enter before confirming a Pending order, and that is the price.
If you want to place a Limited Order and Stop Order simultaneously, select the Order Order (One Cancels the Other).
- Sell - the price you sell.
- Buy – the price you buy.
HOW TO TRADING WITH CURRENCY PAIRS?
Currencies are always traded in pairs. In each currency transaction, you buy one currency at the same time and sell the other.
EURUSD = 1.3755
The currency on the left (in this case EUR) is called the base, it is the basis of every currency deal. The currency on the right (in this case USD) is called quoted.
You buy EUR/USD – buy euro and sell dollars. A currency pair is bought if you think the base currency will be higher than the quoted currency.
Sell EUR/USD – sell euro and buy dollars. A currency pair is sold when you think the base currency will be cheaper than the quoted currency.