Here’s how your trade would work in practice. Upon studying the charts for days on end, you are confident that GBP is about to break bullish, meaning that the markets believe it will increase in price against the USD. In the world of forex, this currency pair is known as ‘The Cable’. In order to clear the mist, let’s say that you decide to trade GBP/USD. Forex Trading Example 1: Buy Order on GBP/USD Alternatively, if you think that the right-sided currency will increase, you need to place a ‘sell’ order. Note: If you think that the left-sided currency of a pair is going to increase in value, you need to place a ‘buy’ order. Pairs will always consist of two currencies, and the price of the pair is based on the real-time exchange rate. As such, you need to choose a currency pair that you are comfortable trading, and then decide which way you think the markets will go.īefore you can place a trade, you need to understand what a currency pair typically looks like. Much like any other asset class active in the online investment space, the overarching concept of forex trading is to make money. This is the best way to learn the ins and outs of trading forex without risking large amounts of money. Some forex brokers are catered exclusively for newbie traders, so you can get started with trades of just a few pounds. In terms of making a profit, you would need to speculate which way the markets will go, and then decide how much you wish to invest. For example, GBP/USD would see traders speculate on the pound sterling and US dollar, and EUR/CHF would consist of the euro and Swiss franc. FX trading is also based on a currency ‘pair’, which will include two competing currencies. The main premise of trading forex is that you are speculating whether the value of one currency will go up or down against another.
Crucially, it is now possible to buy, sell, and trade dozens of currencies from the comfort of your own home, and even via a mobile device.
This is one of the main reasons that the forex space has since reached the retail day trading sector. In fact, large banks trade trillions of pounds worth of currencies every day. With that being said, forex trading is one of the most liquid financial markets in the world. For example, if you were to exchange GBP for EUR, this would represent a forex trade. In its most basic form, forex trading is the process of exchanging one currency for another. Forex – also referred to as ‘FX’, stands for foreign exchange.
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