Understanding The Forex Basics: How Forex Works

Ever wanted a career that you could do in your own time, at your own pace, in your own way? One that you didn’t even need to leave the house for? Well, despite what internet ads might tell you, these types of employment are few and far between. Forex trading however is one of the closest things you’ll find to a job like that.

Simply, trading forex is when people buy and sell currency in the hope that the value will rise or fall respectively, and then be able to profit from this change. Prices are constantly in fluctuation. The market is represented by what are called currency pairs, which is displayed as one currency against another, followed by a value. For instance GBP/USD1.5900 would mean that 1 pound is worth 1.5900 US dollars. As an example of a basic trade, if you bought £1000 worth of dollars, and then the price rose to 1.61, your original $1590 dollars would now be worth $1610, giving you a $20 profit.

Of course, traders don’t just buy and sell currency blindly, hoping that the market will move in their favor. There are a wealth of factors that people look at which help them decide which way prices are going to move. This includes news, fundamental analysis and technical analysis. Lots of different types of news can influence the decisions of traders, but generally the most important ones are financial announcements which suggest how strong a country’s economy is and therefore the state of their currency. Fundamental analysis brings together this kind of information to give a general impression of market movement and currency strength. Technical analysis is quite different. Primarily, it concerns itself with the observation of charts, to look for patterns in price movement. Many traders will use a combination of indicators in their strategy to get the best results.

Forex is of course a type of investment – you must put some money in to get anything out, but it is not the same as most other ‘investment opportunities’. You do not need a large amount to begin with; many brokers will allow you to open an account with very little, and the trades themselves can benefit from leverage. This means that whatever you deposit will be amplified by up to 100 times. Trading on a margin gives you bigger profits, but it does also mean that if things don’t go your way, you might lose more money than you put in to begin with.

Everything can be done from your own home too; all trading is done through an online broker, and because forex is open 24/7 on weekdays, you can trade whenever you want, however you want.

So if you want to give forex trading a try, there is plenty of information available online; you can find out all you need to know from free guides, and most brokers offer demo accounts so that you can see what the system is like before putting any money in.

Like This Article? Subscribe to Our Newsletter

Google+ Comments

Leave a Reply

Your email address will not be published. Required fields are marked *