How to start trading Forex?

Consider a national currency as a security, like stocks, commodities or precious metals. To make a profitable trade you either need to buy it at a low price and then sell at a higher price, or sell at a high price and then buy back at lower price. By being able to go long or short a currency allows to speculate on whether you think the currency will increase or decrease in value. There are many factors that cause the price of a currency to move such as interest rates, economics, politics and also supply and demand to name a few. 

Currencies are traded in pairs such as the Euro against US Dollar (EUR/USD). The first currency EUR is called the base currency and the second currency USD is called the quote currency. A Forex transaction involves buying one currency and selling the other currency at the same time. If you go long (buy) EUR/USD you are buying EUR and simultaneously selling USD. The exchange rate reflects the value of one currency against the another currency. If the price (exchange rate) for EUR/USD was 1.1850 then 1 Euro is equal to 1.1850 US Dollars.

If you think the EUR will appreciate against the USD you can buy 1 lot (100,000) EURUSD at 1.1850. Assuming you are correct and over a period of time the price rises to 1.1950 you can then sell EURUSD. The difference in the 2 prices is 100 pips and the pip value for 1 lot is $10 per pip. On this trade your profit would have been $1,000.

Risk Warning please note the opposite could have also happened, and if the price fell to 1.1750 then this would have resulted in a loss of $1,000. 

 

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.