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Forex, where the commodity to be traded is
currency, and not stocks and shares, is a trading market which gives its
investors, returns in the form of the relative value of one currency
exchanged against another. Forex trading is therefore, always dealt in
currency pairs with the major currency pairs being Euro/US Dollar (EUR/USD)
and US Dollar/Japanese Yen (USD/JPY), to name a few.
And it is with concurrent buying and selling of currencies that the trader
hopes to make a profit on favorable exchange rate fluctuations. Exchange
rates are always fluctuating, going down as well as up, within seconds and
the whole art of trading lies in perfectly foreseeing the trend of the
variation between two currencies.
But, how do you make money in such a competitive and incessant Trade market?
Well, here is an example to illustrate how....
Supposing the current bid/ask price for EUR/USD is going by the rate of
1.5027/30, giving you the option to buy 1 euro with 1.5030 US dollars or
sell 1 euro for 1.5027 US dollars. Now, if you feel that the Euro is
underrated against the US dollar, you would opt on buying Euros, selling
your dollars at the same time. So you buy 100,000 euros by paying 150,300
dollars. You can then start analyzing the market, waiting for the exchange
rates to rise. One can also opt in for Spot Forex Trading due to its
benefits
As predicted, the rates begin to rise and then you decide a favorable rate
at which you plan to sell your Euros to get a hefty profit. Supposing the
Euro rises to 1.5090/93. Now, to realize your profits, you sell 100,000
euros at the current rate of 1.5090, and receive $150,900. You bought 100k
Euros at 1.5030, paying $150,300. You sold 100k Euros at 1.5090, receiving
$150900. That's a difference of $600 or in other words, you successfully
earned a profit of $600.
Change and fluctuation, in any trading market is quiet frequent and rapid,
especially in the Forex market, where these recurrent changes are also
influenced by various other world events and factors like oil prices,
interest rates and economic conditions. But with all these rapid
fluctuations going on, the main aim of any Forex investor still remains on
making profit. Every trader is predicting and waiting for the value of the
currencies to change in his favor. You can also learn more about the
Positions in forex.
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