Forex trading begins with a trader executing a deal with an online market maker or more popularly known as an online broker. The Forex trader chooses which currency pair he wants to trade in depending which he expects to have a change in value soon enough.
The trader places an order to a broker to fill out a position in the currency market. With just a couple of clicks on the trading platform, an order is immediately placed. These orders are passed by the broker along to a partner in the interbank market who in turn fills out the position. When a trade is closed, the broker closes the position and credits the trader's account with either a loss or gain. This somewhat complicated process can all take place within several seconds to a minute.
Money or profit is made via the changing values of currency. Say for example the trader is from the US and wants to earn US Dollars. Our example trader then chooses a pair, which for the sake of giving out an example, is the USD/EURO currency pair. For the purpose of this example, let's say 1.5 USD = 1 EURO. An investment of 150k USD in order to trade 100k EUROs. This means the trader invests 150k USD. From 1:1.5, our trader can wait until the ratio becomes more than 1.5, say for example 1:1.7. Once the value changes this way, our trader can sell is 100k Euros in order to get 170k. Simple math will tell us that the earnings is 20k USD, not bad for a first investment.
Trading units or Forex lots could be too expensive for the common trader. To help the financially challenged brokers came up with margin trading. Margin trading is opening a position in the market with a marginal amount, usually 20-50 times smaller than the lot. The money needed is supplied by the broker, who will reap a share of future earnings. The earnings then are split by the broker and trader, depending on the leverage, which is the fractional value of the original money shed out by the broker.
Money is lost whenever Forex traders make moves that are uneducated and full of bias. Nowadays, trading software tools help traders make decisions that lead to profits, and without them, moves may be executed out of poor judgment. Uneducated moves can cause great losses and even serious debts.
The trader places an order to a broker to fill out a position in the currency market. With just a couple of clicks on the trading platform, an order is immediately placed. These orders are passed by the broker along to a partner in the interbank market who in turn fills out the position. When a trade is closed, the broker closes the position and credits the trader's account with either a loss or gain. This somewhat complicated process can all take place within several seconds to a minute.
Money or profit is made via the changing values of currency. Say for example the trader is from the US and wants to earn US Dollars. Our example trader then chooses a pair, which for the sake of giving out an example, is the USD/EURO currency pair. For the purpose of this example, let's say 1.5 USD = 1 EURO. An investment of 150k USD in order to trade 100k EUROs. This means the trader invests 150k USD. From 1:1.5, our trader can wait until the ratio becomes more than 1.5, say for example 1:1.7. Once the value changes this way, our trader can sell is 100k Euros in order to get 170k. Simple math will tell us that the earnings is 20k USD, not bad for a first investment.
Trading units or Forex lots could be too expensive for the common trader. To help the financially challenged brokers came up with margin trading. Margin trading is opening a position in the market with a marginal amount, usually 20-50 times smaller than the lot. The money needed is supplied by the broker, who will reap a share of future earnings. The earnings then are split by the broker and trader, depending on the leverage, which is the fractional value of the original money shed out by the broker.
Money is lost whenever Forex traders make moves that are uneducated and full of bias. Nowadays, trading software tools help traders make decisions that lead to profits, and without them, moves may be executed out of poor judgment. Uneducated moves can cause great losses and even serious debts.
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Earning a living through the Forex Market is possible. If you are just starting out, then better seek help from advanced trading software tools. Click here to learn more about forex
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