A forex trader usually lays out a position based on whether the value of one country’s currency will increase or decrease, such as GBP/USD (sterling vs. US dollar). As part of the GBP/USD currency pair, the first currency (GBP) is called the ‘base currency,’ whereas the second currency (USD) is known as the ‘counter currency.’
You bet on whether the value of the base currency will rise or fall in relation to the counter currency in forex trading. The GBP/USD currency pair can therefore be purchased if the GBP appreciates against the USD currency. The currency pair can also be short-sold if you believe GBP will decline in value against USD (or that USD will increase in value against GBP).
Forex is often known as foreign exchange or FX trading. It means buying and selling currencies on the foreign exchange market. Forex trading aims to buy a currency pair when you believe the base currency will appreciate or to sell a currency pair if you believe the base currency will depreciate.
Here’s a step-by-step breakdown of how forex trading works:
1. Open a trading account with a broker: To start trading forex, you’ll need to open a forex account with a broker that offers forex trading services. You’ll need to provide personal information, such as your name, address, and contact information, as well as financial information, such as your net worth and source of funds. 2. Choose a currency pair: When you trade forex, you’re buying one currency and selling another. The currency you’re buying is called the base currency, and the currency you’re selling is called the quote currency. So, for example, if you buy the EUR/USD currency pair, you’re buying euros and selling U.S. dollars. 3. Decide on your position size: When you trade forex, you can choose the amount of money you want to trade, also known as the position size. The position size is the number of units of the base currency you buy or sell. 4. Choose a direction: When you trade forex, you need to decide whether you think the base currency will appreciate or depreciate relative to the quoted currency. Then, you can buy or sell your currency according to currency status. 5. Place your order: Once you’ve decided on the currency pair, position size, and direction, you can place your order using your forex trading platform. There are two types of orders: A.market orders; B.pending orders. A market order refers to buying or selling a currency pair at the current market price, while a pending order refers to buying or selling a currency pair at a future price. 6. Monitor your trade: Once you’ve placed your order, you can monitor your trade using your forex trading platform. You can see the current market price, entry price, and stop loss and take profit levels. You can also see your profit or loss in real-time. 7. Close your trade: When you’re ready to close your trade, you can either place a market order to sell or buy the currency pair, or you can use a take profit or stop loss order to automatically close the trade when it reaches a certain price level.
Forex trading can be a complex and risky endeavor, and it’s essential to understand the risks and do thorough research before getting started. Choosing a reputable and trustworthy broker and using risk management techniques to protect your capital is also essential.