Forex Trading Tour
Forex Trading – Introduction
The term Forex Trading, also referred to as currency trading, encompasses several types of transactions on the foreign exchange markets, executed for either hedging or speculation purposes. A basic forex transaction is the simultaneous buying of one currency and the selling of another.
With Forex Trading, investors can make a profit on falling as well as rising markets by speculating on the future direction of the market. Forex Trading allows you to benefit from market movements – however small they may be – in currency rates. Simply put, in forex trading, you make a profit if the market moves in your favour (if your prediction was correct) and you lose if the market moves against you (if you were wrong).
A forex transaction always involves two currencies (one of them is bought while the other one is sold), for instance, the US Dollar against the Japanese Yen (USD/JPY) or the Euro against the US Dollar. For example, say the current ask (buy) quote for the EUR/USD is 1.4535, this means that you need 1.4535 USD to buy one euro.
Forex Trading Example:
You believe the EUR/USD, which is now trading at 1.4535/1.4538 at Finotec will go up (that the euro will continue to strengthen against the dollar) so you buy $100,000 at 1.4538, placing a take profit at 1.4560 and a stop-loss at 1.4528.
You were right about market direction! Three days later, the EUR/USD reaches the new rate of 1.4560/1.4563 and your position is automatically closed for gain cash-in.
Your profit: (closing rate x opening rate) x pip value*
= (1.4560-1.4538) x $10 = 22 x $10 = $220
In this forex transaction on EUR/USD, you made a profit of $220. Please remember that if the market had moved against you, you would have lost.
*When trading a currency pair where the USD is the quote currency – the second one – each pip is worth $10 when considering trades of 100,000 units (lots)