What is Forex?
Forex trading is the buying or selling of one currency for another. Forex trading goes by many names: it is also known as FX, foreign exchange and currency trading.
Forex trading example
Forex trading allows you to speculate on the price of one currency against an other, and make money if prices move in the right direction. Get your free Forex trading eBook, exclusive to us.
For example, if you expect the British Pound (GBP) to weaken against the US Dollar (USD) after Brexit, you should exchange British Pounds for US Dollars now. In other words, you decide to sell British Pounds and buy US Dollars now. If the British Pound does instead weaken against the US Dollar, you can unwind your position, selling US Dollars in return for British Pounds, netting yourself a profit.
Opening trade, placed on March 29th 2019:
- 1 GBP buys 1.32 USD
- This is equivalent to 1 USD buying 0.76 GBP.
- You sell 100 British Pounds and receive 132 US Dollars.
Closing trade, placed on April 1st 2019:
- 1 GBP buys 1.30 USD after Brexit.
- This is equivalent to 1 USD buying 0.77 GBP.
- You sell 132 US Dollars and receive 1.02 GBP, generating a 0.02 GBP profit in the process.
While this example ignores transaction costs and overnight fees, it illustrates how you could make money from changes in the price of one currency against another. Changes in exchange rates are usually small, which explains why most traders borrow money to leverage their positions. Leverage should be used with caution as it can increase your potential gains and losses.
How to trade Forex?
If you are new to Forex trading, we suggest that you first open a demo Forex trading account. easyMarkets.com and AvaTrade.com offer advanced risk management solutions and educational material. A demo account allows you to place trades in real market conditions, without putting your own money at risk.
Alternatively, you could get free 1-on-1 Forex trading lessons when you deposit over US$ 1,000 into a live Forex trading account with AvaTrade.com. AvaTrade was voted “Best Forex Broker 2016” and is regulated in Europe, Australia, South Africa and Japan.
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