How does forex trading work? How to Make Money Trading Forex In the forex market, you buy or sell currency pairs one against the other. Placing a trade in the foreign exchange market is simple.
An exchange rate is simply the ratio of one currency valued versus another currency.
For example, the USD/GBP exchange rate indicates how many U.S. dollars can purchase one GBP Sterling, or how many GBP pounds you need to buy one U.S. dollar. While this could be interpreted to mean that about one in three traders does not lose money trading currencies, that’s not the same as getting rich trading forex. Note that those numbers were cited just two months before an unexpected seismic shock in the currency markets highlighted the risks of forex trading by retail investors.
How to Read a Forex Quote
Currencies are always quoted in pairs, such as GBP/USD and or USD/JPY. The reason they are quoted in pairs is because, in every foreign exchange transaction, you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:
The first listed currency to the left of the slash (“ / ”) is known as the base currency, while the second one on the right is called the counter or quote currency
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency. In the example above, you have to pay 1.51258 U.S. dollars to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency.
The question that any new FX Trader will ask is “How much money will I make from Forex Signal trading?” The quote is often said that the easiest way to get $2,000 in Forex is to start with $4,000
In the example above, you will receive 1.51258 U.S. dollars when you sell 1 British GBP pound. The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency. The forex lifecycle of a typical beginner looks something like these steps.
- Get over excited by a course that promises quick money and easy living.
- Sign up for a Forex signal broker without ever doing any further research
- Blow through a large amount of money in a short amount of days
- Conclude Forex is a scam and no one makes money.
I would recommend joining every Facebook group thread that talking about Forex. Then I would ask questions constantly in those groups. I would be respectful and try to help out answering any questions that I could to those that knew even less.
Next I would understand that leverage can be a double-edged sword. Using excessive leverage can seriously damage what could otherwise be a successful Forex trading strategy. A big part of not using excessive leverage is being realistic about expectations of the return on investment.