There are still people who are confused as to exactly what forex trading is and how it works. Currencies are traded in pairs. With forex trading you are trying to buy or sell a currency at an exchange rate for another currency which is called a currency pair. You can exchange the US dollar for the Japanese yen or the Euro or the British Pound or the Swiss Franc. You may also exchange the Canadian dollar for the Mexican peso.
Since this is written in English, we usually start with the British Pound or US Dollar and we use it as the unit to determine the value of other currencies. The less the US dollar is worth the less of another currency it will buy you. Therefore, if the USD versus EUR rate is 1.200 then you get one Euro for 1.2 dollars. Whereas, if the rate is 1.4, it will cost you 1.4 dollars for each Euro. Therefore, the result you are looking for is to buy USD/EUR at 1.20 and sell at 1.400 because it only costs you 1.200 dollars to buy, yet the buyer from you is paying 1.400 dollars.
This applies to all other currencies as well.
What you are trying in trading is to gain a 'pip'.. This is the unit of fluctuation for your investment. Decimal format is used to calculate the exact exchange rate for currency internationally. For instance a Single Euro might cost you 1.423 US Dollars. You make a profit when the number moves up a point. The more this number moves up the more pips you make. A pip can be a unit of twenty dollars, ten dollars, or less depending on what type of account you are dealing with and the size of the lot.
Trading the forex is not like the stock market which is overseen by the Securities and Exchange Commission (SEC). Most forex trading is done over the phone or online. A great portion of the money that is traded comes from ninety five percent of the market... banks and large corporations. The other 5% comes from small investors who may have a few thousand dollars in their account.
Of course there is a lot different language involved like Technical Analysis, Fundamentals, and Fibonacci retracement. Fibonacci was an old Italian guy who decided upon a theory of numbers that had a relatinship I won't go into here. Retracements are a pull-back of the general trend which is generally accepted to be about 50 per cent. Although, using Fibonacci numbers, it could be somewhere between 33 per cent and 67 per cent. Fundamental analysis simply means information such as drought or a freeze in Florida which affects the price of Orange Juice. That's right, the same anallysis is used for commoditiess as well as currencies.
Such terms intimidate some people, but they are easy to learn and there is no reason why you can't learn the language. The great part of this trading business is that you can 'paper trade'. Paper Trading is easy because you can open a 'demo' account with almost any broker on line and trade as much as you want without putting up any money. Then when you feel comfortable with your abilities or your "Robot" you can start trading with real money.
The basic point is to buy one currency at an exchange rate that will rise up enough in value.
If this article has been helpful in helping you to understand just how forex trading works, you may find our website with a bunch of mechanical trading systems even more helpful.
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I have my own trading theory: the blast theory... When the market bunches up. it will eventually 'blast' through the 'support' or 'resistance' when the volume increases. That's where you can make some money.
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