Making money with forex trading is just about the same with other forms of money making except that you buy and sell currencies with the hope of making a profit at the end of each transaction. This article is aimed at describing how foreign exchange trading work and how you too can make money using it.
It is quite easy to place a trade in foreign exchange markets. As stated above, the object of this sort of trading is to exchange one currency for another with the hope that the exchange rate/ price will change, such that the currency you bought will increase in value in comparison to the one you sold; i.e. a drop in the currency you sold compared to an increase in the one you bought means profit for you.
For example: Let say you bought 10,000 Euros at 1.1800 EUR/USD exchange rates (i.e. +10,000 EUR and -11,800 USD). Assuming, two weeks later, you return to exchange the 10,000 EUR back into U.S. dollar at a slightly higher exchange rate of 1.2500 (i.e. +10,000 EUR and -12,500 USD). At the end of this particular transaction, you’d have made about $700 in profit.
That being said, do keep in mind that the phrase exchange rate is used to describe the ratio of one currency’s value against another. For example, the EUR/USD exchange rate used in the example above indicates how many Euros a forex trader would need to buy one U.S. dollar, or vice versa – that is, how many U.S. dollar you’d need to but one euro.
Before we go any further, you should know that currencies are always quoted in pairs as seen above. This is because in every foreign exchange trading action, you are simultaneously buying one currency and selling the other.
In order to start making money with forex trading, another thing you need to understand is the terminologies in this quoting. Look at the EUR/USD pair above once again. The EUR is referred to as the base currency while the USD is called the quote currency. The base currency represents the basis for buying and selling these currencies. When buying, the exchange rate tells you how much units of the quote currency you will need to change for one unit of the base currency. In the example above, you’ll need 1.1800 units of USD to buy one euro.
On the other hand, when selling, the exchange rate tells you how many units of the quote currency you get in exchange for one unit of the base currency. In the same example as above, you will receive 1.1800 U.S. dollars when you sell 1 British pound.
Read Making Money With Forex Trading Part 2 Here