How To Earn From Forex Trading – What is Forex Trading

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What is Forex Trading?

Forex, sometimes more shortly known as FX, is a short form of Foreign Exchange and commonly know as forex trading. Forex Exchange market is a global market where one currency is traded with the other. In recent time world’s most traded market is Forex market with the huge turnover of $5.1 trillion per day. AMAZING

Foreign Exchange Market remains open for 24 hours and for 5 days of a week. Individual traders, banks and investors buy one currency by selling the other one simultaneously and make profit. While doing this they keep in view the future trends of traded currencies.

Base currency and Quote currency

base and quote currency

Traders make profit due to the fluctuations between two currencies. We refer these two currencies as “currency pair”. The most traded currency pair in the world is Euro against US Dollar or simply EUR/USD. In EUR/USD, Euro is Base currency and US Dollar is Quote currency.

If someone sells GBP/USD then it obviously means that he is selling the base currency (GBP) and buying the quote currency (USD) simultaneously. When buying a currency it is the exchange rate which tells us how much we have to pay in units of the one currency to buy one unit of the other currency.

What is a Forex Broker?

As we know everyone can trade Forex but it is done with the help of a “Broker”. A broker means a firm which gives us access to the Foreign Exchange market. These firms provide us a platform to buy and sell foreign currencies. The brokers get commission for this provision of platform.

You can see the list of all reputable and well known brokers by clicking on the link given below.

How to earn from forex?

In order to make money from Forex traders have to buy a currency pair at its lower price and have to sell it at its higher price. Income they gain by doing this will be the difference between the buy price and the Sell price.

For example:

Let’s assume that someone has $200 in his trading account. He wants to trade in currency pair GBP/USD. The Exchange rate for this currency pair is 1.5. It means he will get 1.5 USD for 1 GBP. In Forex trading this rate will keep changing all the time.

Now he has to make a forecast. If he believes, on the base of some analysis, that GBP is going to rise against USD then he will buy 100GBP for $200 and will wait for the rise or for exchange rate to be changed. After sometime imagine that the rate goes up from 1.5 to 1.6 then this is a profitable situation for him and he will close the trade at this point.

How to identify market rates forecast?

There are three ways to identify the market rates in future:

  • Technical analysis

In technical analysis a trader looks into the historical movements to identify future movements.

  • Fundamental analysis

In Fundamental analysis a trader look into the economic situations, social and political forces to identify the future movement.

  • Sentimental analysis

In sentimental analysis a trader look into the thinking of other traders to know that how they will take the trade decisions.

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