Forex Trading Basics
In fact, you may have experienced an event previously related to Forex trading basics. If you have been in a foreign country that uses a different currency than your before, you have probably exchanged your money with that currency. If you have done this, that means you already have some forex trading experience. And this experience can be considered a simple “forex trading tutorial” to understand forex trading basics.
“Forex” is a short way to say “foreign exchange”. This info can be considered the first clue to understand Forex Trading Basics. Of course, when it comes to “forex trading”, there is more in it. For instance, when a big company imports something from another country, the company needs to pay the cost with the other side’s currency. So, the company obtains a certain amount of that currency before doing business.
It is similar to your holiday exchanges. But this one is on a much larger scale. These kind of transactions are so big, they actually change the value of the currencies. Big demands like this affect values in every market. And, an increase in the demand means an increase in the value. So, as you can imagine, all the big companies around the world doing this kind of businesses make the currency prices move constantly.
Forex Trading Basics: Exchange Rate
Currency Pairs: As you probably already know, to obtain a currency you pay with another currency and the price for a single unit of each currency to pay with another currency is called “exchange rate”. Supply and demand laws determine these exchange rates. For example, when a lot of people and companies want to exchange their US dollars into Euro, the value of US dollars (against Euros) will increase. So, EUR/USD exchange rate will change and increase. It is actually that easy understanding forex trading.
As we said at the start, if you have been in a foreign country exchanged your money with another currency, you probably noticed that if you had done the exchange after a while, you would have a different amount of that currency, maybe you could get more.
Let’s have an example to it for understanding forex trading; assume that you live in the USA and went to Europe for a holiday, you wanted to have some Euros and you exchanged $500 it into Euros. If the exchange rate was “$ 1 = € 0.70” at that moment, you would have €350 in your pocket.
Now let’s imagine that you didn’t spend any of it and go back to the US with that €350 in your pocket. During the time, the exchange rate changed and become “$ 1 = € 0.60”. If you exchange the €350 back into Us dollars now, you would have $583 (and 33 cents). You could make a profit of $83 from just holding your money as Euros during this time.
This example above simply summaries the Forex trading basics and how forex trading works. Traders in the forex market hold certain currencies in their account and exchange them when they see a profit. The difference is that in Forex Trading you don’t travel around the world or don’t even go to your local exchange office with cash. It wouldn’t be practical and fast enough to catch sudden changes in exchange rates.
Understanding Forex Trading Easily
In Forex Trading you do all the exchanges online through Forex Brokers and their web platforms. The live online aspect of forex trading allows you to do exchanges at any time and take advantage of quick changes in prices. You can get many different foreign currencies and trade them between each other when their prices give you a profit. This is, basically, how you do forex trading and what are the forex trading basics.
The forex market is open 5 days a week and 24 hours a day. And, you can start forex trading with just a small investment, depending on the broker you choose starting around only $150. Of course, you need to learn how to manage your exchanges to make a real profit. But, you can use resources such as Forex-Faq.com to study forex trading basics, and the demo broker accounts to practice.
In this article about “Forex Trading Basics”, we tried to present an easy-to-understand forex trading tutorial. We hope that it is useful for understanding Forex trading for beginners.
▌ Tip: If you’d like to see more about “Forex Trading Basics” and “Understanding Forex Trading” topics, you can find them by clicking on the “tags” below: