March 17, 2021 | by sandeep
What is Forex & How You Can Make Money Trading Currencies
By Mateo Jarrin Cuvi
We’re certain you’ve already come across these five letters strung together.
They have probably popped up in an ad while looking for a cat playing a ukulele on YouTube.
Or maybe you have read about it as you scoured financial news in search of new ways besides cryptocurrencies to become your own boss and earn some extra income.
In any case, Forex is the largest single trading market in the world, one that’s worth close to $7 trillion and involves almost 10 million active traders in all corners of the world. Talk about potential.
So we’ve got your attention with these gaudy numbers, huh?
Well, allow us then to provide you with a short introduction to this booming market and how you too can gain from it.
What is Forex?
The simplest definition of foreign exchange, or Forex, is the interchange of one country’s currency for that of another country. But when we refer to Forex, we’re talking about the international market for both buying and selling currencies.
One particular advantage of the Forex market is you don’t need to physically own the currencies to trade. You can trade on the foreign exchange to profit from the changing values of currencies based on their exchange rates. In fact, the foreign exchange market is what sets the value of floating exchange rates.
All currencies traded are done in pairs and are referred to as currency pairs. The most popular currency pairs are known as majors and involve the US dollar matched with the euro, Japanese yen, British pound and Swiss franc. Other important major pairings combine the US dollar with the Australian, Canadian and New Zealand dollars.
Minor pairings are US dollar-less, matching the euro, British pound, Swiss franc, Japanese yen, Australian dollar, Canadian dollar and New Zealand dollar with one another.
And then you have all your exotic pairs, which add to the fray the Turkish lira, Mexican peso, Norwegian krone, South African rand, Singapore dollar and Hong Kong dollar.
Simply speaking, when you participate in the Forex market, you sell your currency to buy another one. In other words, it is the purchase of one currency using another currency.
So, if you have ever gone on holiday and had to exchange currency, you have traded on Forex.
For instance, an American vacationing in Europe will need to exchange dollars for euros at the going rate at that precise moment. They are selling US dollars and buying euros. When they return from their holidays, they will need to exchange their euros back into dollars. This time they are selling their euros and buying US dollars.
However, with a daily market worth close to 7 trillion US dollars, it can’t just be holiday goers trading, right?
Currently, close to 9.8 million active users trade foreign exchange including commercial, investment and central banks, investment managers, hedge funds, multinational corporations and individual investors just like you and me who open and close positions to earn a living or make some side cash.
How Can You Profit from Forex
Now it’s time to understand how one can make money off of the Forex market. So let’s take a look at a profitable Forex trade.
Before making a trade on Forex, all experienced traders will do two crucial things:
- Analyse previous and current market behaviour, and;
- Assess the economic climate prior to making an informed decision and placing a trade.
When analysing the markets, traders are essentially assessing how volatile the market is and trying to predict if the volatility is an opportunity for them to make profit, or a potential risk.
Once you feel informed enough to make a decision, it’s time to make a trade. So buckle up!
Let’s say you decide to buy 1000 euros against US dollars.
For the sake of this example, imagine that the exchange BUY rate is at 1.500, meaning that in order to get 1000 euros, you will need to pay 1500 US dollars. You have now paid 1500 US dollars for 1000 euros. But where’s the profit?
Now let’s imagine that after a week, the EUR/USD exchange SELL rate is 1.600, meaning the exchange rate to sell euros for dollars. So you choose to sell your 1000 euros and get 1600 US dollars in return.
Remember, we initially started out with 1500 US dollars and now we have 1600 US dollars. This means you have made a 100 US dollar profit by trading Forex. Incredible, right?
However, if the EUR/USD exchange SELL rate had been, say, 1.400, and you decided to sell your 1000 Euros with the exchange SELL rate of 1.400, you would in fact be at a loss of 100 US dollars. Not ideal at all.
Basically, that is how a profit or a loss is made in the Forex market.
Why Do Currency Prices Fluctuate
Keep in mind that prices fluctuate in the Forex market for many different reasons. Supply and demand, investor perception, greed and the fear of missing out, historical patterns, and a country’s economic indicators, among many others, impact Forex prices.
As a result, traders rely on three specific types of analyses to base their trades on and make a profit.
Fundamental analysis examines the many macroeconomic and financial factors that cause prices to move, including a country’s trade balance, inflation, GDP, employment levels, retail sales, companies’ performance, industrial production and interest rates, to name a few.
Forex traders following a fundamental analysis will keep a detailed calendar that includes the most important indicators and the days on which these statistics are released to the public. Additionally, traders will keep track of the market’s expectations as this will influence how the market reacts once the statistics are actually out.
Technical analysis looks for specific historical patterns in a price chart including volumes traded, price movements, chart patterns, oscillators, moving averages, and support and resistance levels, among others. Traders assess the strength and direction of trends to determine when it’s a good time to either enter or exit the market.
Best of all, as you delve deeper into technical analysis, you’ll come to learn all about Japanese candlesticks, a special psychedelic-looking price chart invented in Japan by a rice impresario. Funky stuff.
Finally, sentiment analysis tries to understand how traders perceive or feel about specific currency pairs and the market in general, whether it is bullish or bearish. In other words, this sort of analysis captures the overall sentiment of the market, how it is feeling, what is its tone, and how crowds perceive it.
Millions of traders out there apply these techniques on a daily basis, trading currencies via a trustworthy broker and earning a living while doing so.
So, before taking another step, you will need a trading account with a broker you trust and feel safe trading with.
That’s where we pop in.
FXPRIMUS. The Safest Place to Trade.
Who is FXPRIMUS?
Founded in 2009, FXPRIMUS has established itself as one of the leading Forex brokers in the world.
Offering clients a range of instruments by which to trade currencies, commodities, energies, indices and more, the company has built a strong reputation in the Forex market thanks to its dynamic emphasis on safety, security and integrity.
FXPRIMUS has been at the forefront of the implementation of the safest practices possible in the Forex industry, combining research in new technologies with the mitigation of its client’s risk via a comprehensive academic program. This has allowed us to offer our users a secure, safe and sophisticated trading platform.
Traders of all levels also gain from the company’s endless dedication to providing them with the best possible educational support throughout their trading lifecycle.
As part of FXPRIMUS, you can benefit from these unique features and more:
- Low Spreads
- Among the Fastest Execution Speeds
- Single-Day Execution on Withdrawals
- Professional Indemnity Insurance up to €5 Million
- Enhanced Safety and Security
Find out more about why FXPRIMUS is the safest place to trade. Get in touch!
To check out a list of all of our ongoing promotions and offers, have a look at our website here.
*Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of proﬁt, which may arise directly or indirectly from the use of or reliance on such information.