What is Trading?
Forex (or FX) means foreign exchange. What exactly does this involve? Exchanging one currency for another – it’s as simple as that.
Forex in Everyday Life
Imagine that you have just arrived in New York from Paris. You want to buy a hamburger at the airport, but you only have euros on you. So you’ll need some US dollars if you don’t want to see New York on an empty stomach.
So you go to the first foreign exchange desk at the airport, and exchange your euros into US dollars. Whether you believe it or not, this is the very first step of what we call forex trading.
Wait a minute! You exchanged 10 euros and got back 12. 74 US dollars. How’s that possible? This is the actual exchange rate that made you richer.
After a few days you wave goodbye to the Statue of Liberty and take a flight to Berlin. You exchange your leftover US dollars into euros. Hey, what happened? You got back less than you expected… Why? While you were in New York City, the exchange rate changed. Why? That’s because of inflation, economic changes, and the balance between supply and demand, to only name a few of the factors that can influence the value of a currency
Be Alert to Changes
Everything changes all the time. So do currency rates.
In a nutshell, keep an eye on when exactly you exchange one currency for another, what currency pair you choose (e.g. US dollars vs. euros) and how much you exchange. Last but not least, how much you profit from the exchange.
The when, how much, what and profit are the basic points of forex trading.
In forex, you buy and sell currencies (for example US dollar, Japanese yen, euro), and you may even earn a profit, according to which currency pair you exchanged. This is why we call it foreign exchange. Depending on the currency rates and market movements, you can make profits. It all depends on how alert you are and how economies change.
Don’t confuse forex trading with physical trading – it’s all online! You buy a currency online, sell another online, and you make a profit online. If you have a forex trading account, all your profit will be available there. You can withdraw your profit to your personal bank account any time – and finally cash it, if you want.
Because it’s all about money, let’s start with the basics. To make things simpler, in forex we use symbols. The most commonly traded currencies are listed in the table below.