Everything you need to know about foreign exchange

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Read on to find out everything you need to know about the forex market.

Forex has been a popular trading option for many people for several years now. Especially today, learning about it and accessing trading platforms is easier than ever, allowing anyone to start trading immediately.

If you want to start your own forex journey, watch https://www.oanda.comwhere we have a quick list of everything you need to know about the forex market.

What is forex ?

Forex, or foreign exchange, is the buying and selling of currencies. There are forex exchanges around the world, and they all offer dozens of currency pairs that you can buy and sell.

Currency pairs will be discussed later, but in essence you are not buying or trading stocks or crypto, but rather money like dollars or pounds. You make a profit or loss depending on how a country’s economy develops and the exchange rates of the currencies you trade.

Currency pairs

Unlike stocks or crypto, forex trading is not the buying or selling of an item, but rather the buying of a currency pair. When you look at an exchange you will see something like dollar/pound, pound/yen, euro/yuan.

The first currency is the one you will use to buy the second. Prices will be determined by the prevailing exchange rate. This means that prices are constantly changing and something you bought today won’t cost the same tomorrow.

How do you make a profit?

The question that most people ask in forex is how to make money? It is relatively easy to answer this question; let’s say you want to trade with the dollar/pound pair and you have $10 to invest.

For the sake of discussion, let’s say $10 buys you £15. You spend your $10 and now have £15, then wait for the pound to strengthen against the dollar, then sell your books back for dollars.

If the the pound is weakening at $1 you will now have $9 when you resell your books, if it strengthens by $1 you will have $11 when you resell; you make a profit on the currency you bought by strengthening against the one you bought. Sometimes that profit will only be pennies, but that’s when leverage is used.

Types of trade

There are two main types of trading that people use. Both are efficient and can earn you money, with one requiring much more time and labor than the other.

scalp

Scaping is a trading method that allows you to make several trades per day and take advantage of small fluctuations that occur all the time. The profits are often not more than a few cents, but you are making so many trades per day that the profits start accumulating very quickly.

The disadvantage of scalping is that it requires many hours in the day and constant monitoring of the markets. It only works well because you are doing a ton of transactions. If you can’t dedicate 6 or 7 hours of your day to trades, scalping is not for you.


Trades of the day

Day trading is a long game of sorts in forex. It sees you making trades in the morning and then leaving them for a while. This can range from 24 hours to a few weeks or even months.

While you should still pay attention to these trades regularly, you’ll often let them work their magic and then cash out after a while. These types of trades are great for those with limited time and newbie traders.

Leverage

Forex brokers are different from stockbrokers or crypto exchanges because of their ability to offer leverage. Simply put, leverage is the money given to you by the broker to allow you to invest larger sums. Since profit margins can be so low, leverage allows you to increase your investments and therefore increase your profits.

Let’s say you invested $10 with a profit of 1%; that’s a profit of $0.1. A broker may offer you 50x leverage, which means your $10 is now $500 and your 1% profit is now $5. Since forex profits can be so low, as little as 0.5% or less, the more money you invest, the better.

Leverage is something that should be researched, and you should familiarize yourself with your broker’s terms and conditions regarding leverage before using the feature.

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