Introduction
Imagine a scenario where different traders, banks, and big corporations are constantly indulging in a game of buying and selling without meeting anyone at a physical location, making profits, or incurring losses! And what is being bought or sold? Different foreign currencies! Isn’t that exciting? Well, that’s forex trading for you in short! Let’s try to understand with the help of an example.
Here are certain basics about forex trading that you need to know before diving into it:
- Currencies are always traded in pairs such as USD/GBP, JPY/INR, etc.
- The currency mentioned first is the base currency, and the second one is the quote currency.
- The price at which one can buy base currency is known as “Bid price.” The price for selling base currency is known as “Ask price.”
- The difference between the two is called “Spread.” The movement in the exchange rate is measured by “PIPs” (Percentage in Point).
Example:
Let us take the pair EUR/USD
The pair is trading at 1.21884/1.21886
Here, EUR is the base currency, USD is the quote currency.
1.21886 is the price at which Euro could be bought, and 1.21884 is the price at which it could be sold. The Spread here is 1.21886-1.21884 = 0.0002 PIPs
How to Make Money Through Forex Trading
Forex trading can seem complex initially, but you can start minting money once you gain knowledge on the subject. For starters, keep these pointers in mind:
- Start with a practice account:
You should start trading in forex markets with the help of a demo account offered by most trading platforms to get the hang of it.
- Start small:
It is better to start by investing small amounts of money and then gradually increasing it once you understand the functioning of the markets well.
- Find a broker:
You can trade in forex markets through a brokerage or a trading platform. It is better to find a broker who can not only guide you through the basics but also assist you in forex trading.
- Keep a record:
It is always advisable to maintain a trading record of all your transactions. Keep an account of all your profits and losses in order to learn from any mistakes and avoid repeating them in the future.
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