What Is Forex Trading
Forex trading might sound strange and confusing if you’re not familiar with the business and investing world, but you don’t need to worry: it’s actually fairly straightforward and easy to understand once you get started. In order to help kick-start your understanding of Forex trading and perhaps even get started on entering into the Forex market yourself, we’ve compiled some useful information on Forex trading for you to read over. We hope you find it helpful!
What Is Forex Trading?
First of all, “Forex trading” is simply a shortened way of saying “foreign exchange trading” This type of trading is essentially the buying or selling of one type of currency in exchange for another type of currency. And believe it or not, Forex trading is actually one of the most prolific markets in the world; not only do countries and businesses participate in Forex trading, but so do we whenever we travel: whenever you go overseas and exchange our native currency for the currency of the country we’ve visiting, we are actually participating in foreign exchange trading (although you probably wouldn’t think to call it that when on vacation!).
When pursuing Forex trading as means of business, your overall goal is going to be to make a profit. Therefore, you will likely be buying currencies at a low price to sell them at a higher value at a later time, thereby earning more money than you originally spent acquiring that currency.
How To Start With Forex Trading: The Basics
Before you jump into the Forex trading market, there are some important pieces of information about how Forex trading works that you should know and understand, beyond the simple goal of making a profit.
The first thing you should keep in mind is that one of the most notable factors within the market of Forex trading is the values of currency in relation to one another; generally, the demand for certain currencies will push their value either up or down in relation to currencies from other countries. At the time of this article, for example, a United States dollar is equivalent to only .84 of a Euro, but worth over 68 Indian Rupee. The value of individual currencies is always shifting, so it’s important to keep track of the current foreign exchange rates if you’re serious about Forex trading.
Another important factor to understand is that Forex trading is always done in pairs, due to the fact that to trade currency you will always need two currencies to work with. You must also understand that each individual currency is represented by a symbolic shorthand; US dollars are USD, for example, while Euros are EUR, Japanese Yen are JPY, and Australian dollars are AUD, and so on. Therefore, if you are exchanging US dollars and Euros, the pairing would be USD/EUR. Furthermore, that pairing flips depending on whether you’re buying or selling (USD/EUR, which “trading the dollar” versus EUR/USD, which is “trading the Euro”).
Additionally, when prices for currency exchanges are listed, it will always be how much of the second currency it will cost to buy the first currency; for example, if the price is 2.5 for AUD/USD, then that means that it costs 2.5 US dollars to buy 1 Australian dollar. To find the price for the alternative currency pairing (USD/AUD), you simply need to reverse your math a little bit to accommodate for the switch. In this case, divide 1 (for the single USD) by the current exchange rate (which for our example would be 2.5).
Overall, Forex trading is very straightforward once you understand how it all works. You simply need to take the time to learn the various trading methods and keep track of the changing currency exchange rates.