How To Trade Forex
Fundamentals of Forex Trading
Foreign currency exchange, also referred to as Forex, can become an exciting hobby, and a great source of income and investment. To put it into perspective, the currency market trades about 22.4 billion dollars daily, whereas the Forex market reaches about 5 trillion dollars daily. You can earn a good amount of money, without putting down a lot of money in your original investment. Predicting the direction of the market is the real excitement, and you can trade foreign currency online using several methods. However, you must first learn how to trade currencies.
Learning the fundamentals of trading and basic Forex terminology
Learning Forex trading starts with knowing the basic terminology. The currency you spend or dispose of is called the base currency, and the currency you buy is called quote currency.
For example, if you want to buy some American Dollars using the British Pound, we will see an exchange rate that looks like this : GBP/USD=1.589. This rate means that you will spend 1.589 dollar for every British Pound. This is along deal, which means that you want to buy the base currency, and sell the quote currency. The previous example represents the case of someone who wants to sell American Dollars, in order to buy British Pound. However, if the deal is short, that means that you want to buy the quote currency and sell the base currency. In other words, you spend or sell the British Pound, in order to buy the American Dollar.
The bid price is the price with which your brokerage firm is ready to buy the base currency in exchange for the quote currency. The asking price is the best available price at the time when you are ready to sell your quote currency in the market. Learning how to trade currencies helps you determine the appropriate times to carry out these operations.
The ask price is the price at which your intermediary buys the base currency for the quote currency. The ask price represents the best available prices when you are ready to buy from the market. The spread represents the difference between the bid price and the ask price.
When reading the price of a currency pair in the Forex market, you will see two numbers in the price box of the currency pair.The bid price is located on the left, whereas the ask price is located on the right.
You must decide which currency you will use to buy, and which you will use to sell. Learning Forex trading helps you make the best possible decision.
Learning Forex trading includes the need to study some predictions regarding the economy. So, if you think that the American economy will keep getting weaker, and that’s bad for the Dollar, then maybe you should consider selling the dollar for a currency from a country with a stronger economy. While considering the trade situation in a specific country, and, if there is a country with a lot of demanded products, then the latter will probably export products to gain money. This is an advantage that strengthens the country’s economy, thus increasing its currency rate.
While taking politics into consideration, if there is a country going through elections, then the rate of the country’s currency may increase if the winner had a good financial plan. Also, if the government was aiming to loosening the regulations in order to stimulate economic growth, then the currency rate will probably increase.
Reading economic reports for example, or the reports about the other economic factors such as employment and inflation, helps determining the direction of the currencies. Reports on the gross domestic product (GDP) of a country, also helps in determining the rate of a country’s currency.