What Is Forex Trading | How To Trade Forex | Step By Step Guide
Introduction to ” Forex Trading “
We are starting this section Forex Trading for beginners who want to learn from basics to pro-level. Almost all aspects of Forex Trading will be discussed in this section. We are trying to create unique and live stuff to educate new traders to learn fx trading step by step.
First of all, we will share some basic topics and then practical Pro level examples through live trading experience.
To become a successful trader, it is necessary to have some practical live experiences.
What is Forex
The word “Forex” is the short form of Foreign Exchange. (Exchanging of different foreign currencies) and buy or sell off that currency for profit, or personal demand is called Forex or Fx Trading.
Forex traders buy currencies at the low price and sell them at the high price to take profit in the difference of prices or exchange rates.
Today rate of dollar is 1$ = 104PKR
If we buy 1 dollar, we have to pay 104 PKR to the exchanger.
We plan to buy 1000$, let’s calculate 1000X104= 104000
After few days we decide to sell our dollars back to the exchanger.
Now dollar price becomes 105 PKR
We will get 1000X105=105000
Our profit is 105000-104000= 1000 Profit
This is the very basic and simple example of. Forex Traders buy currency at a low price and wait to sell that currency at the high price to take profit.( Through increasing and decreasing the value of currency )
Another scenario If dollar price drop towards 103 and we decide to sell the dollar.It will give us Loss because we buy at 104 and selling at 103.
Another Example of Forex Trading or Forex Transaction
Let suppose you live in a Europe and you plan to go to the United States for the vacation. You are gonna convert some of your euros into the dollar for spending in the United States. Right !!
We will have to look what is the exchange rate between euro and USD.
We got exchange rate 1.1520 ( It’s mean 1 Euro = 1.1520 $ )
Converting 1000 Euro into dollar, we got 1000X1.1520= 1152 $
So we have 1152$ in the pocket.
After a couple of weeks when vacation is over, and we plan to go back home from united states.We need to exchange dollars back to euro.
Now exchange rate becomes 1.0510.( Dollar gain more strength against Euro )
We had 1152$ in pocket, and if we exchange back dollar into euro we will get 1152/1.0510 =1096 Euro
Wow, We got 96 Euro profit while holding the dollar for some days during vacation.
Congratulation, You have done the forex transaction and take profit while holding dollar which was gaining strength against the euro.
I hope a couple of these examples help you understanding what forex trading is.
Concept Of Forex Trading
The concept of forex trading is almost clear in above-written examples. Let me add more information to get you understand what exactly the main concept of forex traders. We Buy currency at low prices and sell that currency at high prices.
Buy Low & Sell High is the main motive of forex traders.
Forex traders repeat this process of buying at low and selling high to remain profitable in the market.The question is how they know when to buy or when to sell? This is a logical question every forex student ask in the beginning. Well, the answer is through analysis, Reading the market data, analyzing and studies the history of currency, reading political or fundamental data of particular currency and much more ( we will discuss this in detail in next episodes).Most traders use to trade with two kinds of analysis.
- Fundamental Analysis
- Technical Analysis
Before going deep in fundamental and technical analysis chapter. I would like to add some more basic terms you must need to know.Please click the link below to find out more basics of forex trading or terminology.