How to Make Money Trading Forex
Placing a deal on the foreign exchange market is simple. If you have prior trading experience, you shouldn’t have any trouble understanding forex trading because the trading mechanics are very similar to those found in other financial markets (such as the stock market). The goal of forex trading is to convert one currency into another in an effort to alter the price. More specifically, the value of the currency you buy will rise in relation to the value of the currency you sell.
Many currency pairs fluctuate between 50 and 100 pip per day (or more or less depending on the state of the market as a whole). A currency pair’s fourth decimal place, or the second decimal place when JPY is included, is denoted by the term “pip,” which stands for “point in percentage.” A 50 pip move occurs when the EUR/USD price goes from 1.3600 to 1.3650; if you bought the pair at 1.3600 and sold it at 1.3650, you would have made a 50 pip profit.
Depending on how much of the currency you bought, the profit you made on the aforementioned hypothetical trade will vary. Each pip in a 1,000 unit transaction (referred to as a “micro lot”) costs $0.10, so for you to make trading forex would be calculated as follows: 50 pips x $0.10 = $5 for a 50-pip gain. Each pip is worth $1 if you purchased a 10,000 unit (“mini lot”), so your profit is $50. Each pip is worth $10 if you purchased a 100,000 unit “standard lot,” so your profit is $500.
The term “pip value” refers to the value of each pip. The USD second pair is covered by the aforementioned pip value. If the USD is listed first, the pip value might change. For instance, divide the standard pip value (above) by the current USD/CHF exchange rate to obtain the USD/CHF pip value. The value of the micro lot is equal to 0.10 / 0.9435, or $0.1060, where 0.9435 is the pair’s current price. Do the same for the USD/JPY pair and then multiply the result by 100. For trading purposes, the direction currency of the forex price chart is always the first currency listed in the pair. The EUR is rising against the USD when the EUR/USD exchange rate is rising. The euro depreciates against the dollar when the price declines on the chart.
Here’s another example:
Say you have 1,000 USD and want to buy as many EUR as you can with your money. The ask price for EUR/USD is 1.23. How many EUR can you buy?
If you said 813.01 EUR, you are correct! Since 1 Euro buys 1.23 USD, we divide $1,000 by 1.23 to get 813.01. Easy as pie.
A simple way to read forex quotes
One Euro, for instance, costs 1.20 US dollars. To be clear, a price of 1.20 for the EUR/USD pair indicates that you can purchase one EUR for 1.20 USD.
Conclusion
Forex trading is by no means a new concept, but COVID-19 and other occasions have increased interest in it. The top forex trading apps have only increased everyone’s access to online currency trading. However, before diving in, it’s crucial to understand the fundamentals. The fundamentals are simple to understand once you know how to read a forex quote. However, if you use these quotes to create a successful forex trading strategy, understanding how they are calculated and what they mean will be essential to your success.
