Forex Trading Explained in the Simplest Terms
For anyone who is still very green to Forex trading, there are some basics that need to be covered regarding pricing as well as the very first Forex trades placement. This is a market where companies, major institutions, and individual investors can take part in.
The main aim of trading in this manner is very simple. It is just like all other forms of speculation. This is where one wants to buy one currency at a low price and then sell it at an even higher price. It can also be to sell a currency at a price and then buy it back at a much lower price so as to gain profit.
There are some major currencies that are traded in the world today. However, it is still possible to trade the minor currencies, which are referred to as the exotic. The exotics are so called because they are not traded so frequently. Also, the market happens to be less liquid thus spreading the trading even wider.
The trading spread
Like other prices, the spread of a pair usually consists of the bid price, which can be sold as well as an offer price at which you can purchase. You need to note the way around that you are trading for every Forex trading. Usually, as you buy, the spread reflects the price set for purchasing the first currency of the pair with the second one. In such a case, you should sell if you suspect that there will be a fall against the other and then buy back when the price is lower. This will mean a profit on your part.
Calculating the profit
When you think the price of a currency is about to rise, then you should buy before the rise. After the rise takes effect, you sell at a higher price. This means that the difference will be the profit that you make. The profit is usually the cost of the transaction minus the cost that was originally when you were purchasing the euros.
It is important to note that the profit is usually determined by the second currency within the pair. As an alternative, you may anticipate a fall in the price. In such a case, selling is a great idea. If indeed the price falls, then you can buy back the same currency at a lower price and wait for it to rise again before you can make another sale. The difference between the transactions stands as the profit. Even in this case, the profit determinant is your second currency of the pair.
As for CFDs, The contracts are bought or sold representing different trade sizes. There is much more to learn about the two methods.
