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You always have a base currency and a currency that you want to purchase in your trading account. Currency pairs are always traded on the FOREX market. For example, you would like to exchange EUR for USD. EUR stands for euros and USD for US dollars. Other currencies have different abbreviations. Now let’s say you want to exchange US dollars for 100 euros. On the FOREX market, the EUR / USD buying rate is displayed as 1.3500, for example. So you pay 135 US dollars and get 100 euros. A few weeks later, the course looks different. It is now 1.4500. You can now sell the 100 euros and receive 145 US dollars in return. You made $ 10 in profit.
Prices are always referred to as the buy price (= ask price) and the selling price (= bid price). The buying price is always greater than the bid price. The difference is called the spread. In the area of forex trading, there are also long and short positions. If you buy an asset because you are confident it will go up, it is considered a long position. If you are selling an asset because you think it is going to fall, it is a short position.
There are also the so-called pip, leverage and CFDs. Pip stands for Percentage in Point or Price Interest Point. It indicates the change in the price of a currency pair. This is the change in price in the fifth digit in the exchange rate. A rate with a single digit before the comma is the fourth digit after the comma. Many brokers offer leverage to their clients. This means that you can buy positions for which you actually do not have enough funds in the trading account. For example, a leverage of 1:10 means that you have ten times more money to buy than you have in your account. You can increase the profit margin or lose a lot more money at the same time. Last but not least, CFDs offer the opportunity to speculate on future developments. There are separate explanations for this.
Trading forex is easy once you get into it. You will quickly understand the individual options. As with all financial investments, however, it should be said here that the profits can be high, but so are the losses.
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