The Forex market is a place where investors can make money trading currencies. A forex market works in a similar line to the stock market. Forex trading will be a very similar experience for those who are already experienced in stock trading.
Money trading currencies can be easily made by understanding how the forex market works and some basic techniques of forex trading. Currency trading in pairs is the main trade that takes place in the Forex market. One currency is the exchange of another currency. When the value of the currency bought is higher than the value of the currency sold, there is a profit. Some of the important terms used in Forex market include exchange rate, forex quote and long / short.
To make money trading currency, the first step is to get used to the semantics used in forex trading. The exchange rate is nothing more than the ratio of the value of one currency to the value of another. The two currencies are referred to as currency pairs.
For example, a USD / GBP exchange rate can be read about how many US dollars will be needed to buy one United Kingdom pound or how many United Kingdom pounds will be needed to buy one US dollar. To trade currency, it would be appropriate to understand it with an example. GBP / USD = 1.25 is a simple Forex quote. The first currency is called base currency. The second currency is known as quote currency or counter currency.
When an investor buys a currency, the exchange rate gives how many units of quote currency to buy one unit of base currency. In the sample above, an investor needs 1. 1.25 to buy a single United Kingdom pound. The exchange rate at the time of sale is interpreted slightly differently – this is how many units of quote currency can be earned by selling a unit of base currency. In the example above, a forex trader can get 1. 1.25 by selling one British pound.
Base currency is the primary factor that decides whether an investor will buy or sell. To make money a trading currency, one has to decide whether to buy or sell. For this you need to analyze long / short position. If you want to buy, you have to increase the base currency value (long position) and if you want to sell the base currency value, you have to decrease (short position).