Currencies trading
Forex trading might sound complicated, but the basic idea is simple: You buy one currency and sell another at the same time. The goal is to profit from the price difference between the two currencies.
This guide will break down the basics of how forex trading works in a way that’s easy to understand.
The Forex Market Structure
Forex is a decentralized market, meaning there’s no single exchange. Instead, trading happens over a network of banks, brokers, and individuals worldwide.
The market is open 24 hours a day, Monday to Friday, across major financial centers:
- Sydney
- Tokyo
- London
- New York
How Do You Trade Forex?
Trading forex means exchanging one currency for another. This happens in currency pairs, such as:
- EUR/USD (Euro/US Dollar)
- GBP/JPY (British Pound/Japanese Yen)
If you believe the Euro will rise against the US Dollar, you buy EUR/USD. If you think it will fall, you sell EUR/USD.
What Affects Currency Prices?
Several factors influence forex prices:
- Economic News – Reports like employment rates, GDP, and inflation can move prices.
- Interest Rates – Higher interest rates usually increase a currency’s value.
- Market Sentiment – If traders feel confident about an economy, its currency may strengthen.
- Supply and Demand – More buyers than sellers push a currency price up, and vice versa.
How Do Forex Traders Make Money?
Forex traders make money when the currency they bought increases in value compared to the one they sold. They use:
- Leverage – Borrowing money from a broker to control larger trades.
- Technical Analysis – Studying price charts to predict market movements.
- Fundamental Analysis – Watching economic and political news.
Conclusion
Forex trading is based on buying and selling currency pairs with the aim of making a profit. By understanding how currency prices move and practicing with a demo account, beginners can start trading with confidence.
Next, let’s compare forex with another major market: Forex Trading vs. Stock Trading: What’s the Difference?