Forex

Forex - What is it and how does it work?

Forex is basically the trading of one currency to another, the aim being to make a profit by buying and selling at the right time. Currencies change in value all the time so you must aim to sell the currency at a higher value then when you purchased it.

For example:
Your Action EUR/USD

You purchase 1000 EURO at the EUR/USD exchange rate of 1.1900 +10,00 EUR -11,90 USD*
After a few weeks, you trade your 1000 EURO back into U.S. dollar at the exchange rate of 1.2600 -1000 EUR +1260 USD**
You earn a profit of $70

*EUR 1000 x 1.19 = US $1190
** EUR 1000 x 1.26 = US $1260

As the forex market is large, you will always find someone who will want to buy the currency you are selling, even at a loss to them because there are companies that cannot wait for days to have access to the currency they need. This means that you can trade forex from the comfort of your home at your convenience. The markets are open 24/5, however I found out that it is better to wait for market hours to trade because there would be more volume and more traders and you can make easier profits. To get an idea, the best times are:
TOYKO: 7pm-4am EST
NEW YORK 8am-5pm EST
LONDON 3am-12noon EST
SYDNEY 5pm-2am EST

Currencies are quoted in pairs (the base currency and the counter currency), the reason being that with every transaction you are buying a currency while selling another. The base currency is what you need to check for the trade. If you buy EUR/USD, you are buying the base currency (in this case EURO) while automatically selling the quote currency (in this case USD). You would buy the pair if you believe the base currency will increase in value in relation to the quote currency. You would sell the pair if you think the base currency will lower in value in relation to the quote currency.

Forex terminology:

Long/Short Positions
First, you should determine whether you want to buy or sell. Long Position: If you want to BUY (buy the base currency and sell the quote currency), you need the base currency to rise in value to make a profit. Short Position: If you want to SELL (sell the base currency and buy the quote currency), you want the base currency to decrease in value to make a profit.

PIP (Price Increase Point)
This is the term used to refer to a single price movement value. This is regardless of how many decimal places a currency pair is quote to. Eg if the EUR/USD is trading at 1.1191 and then increases to 1.1192 it would have increased by 1 PIP.

Getting Started

It is actually quite easy to start trading forex. There are a lot of forex brokers available and opening an account is very easy. We recommend using Etoro because they give you a practise account so you can learn how to use forex without risking any of your own money initially! Their platform is also very easy and they help you along so you do not get overwhelmed with a huge lot of numbers and graphs.