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Trading forex is not as complicated as most people think. Many have shunned the trading business for fear of losing their hard-earned cash through the complex process of trading. Retails traders are often guided through online tools and support on how to trade forex and in most cases, demo accounts are opened for them to practice on until such a time when they feel ready to join others in the real trading world.
How to Trade Forex for Beginners
In forex trading, a trader simply buys and sells foreign currency. A trader trades in the largest market in the world called the forex market. It is easy to place a trade in the forex market and the procedure is the same as that found in other markets like the stock market. The aim of forex trading is to exchange one currency for another in the expectation that the price will change and that the currency you bought will increase in value compared to the currency you sold, to allow you to make profit. In essence this is what forex trading entails.
How to Trade Forex: Forex Quotes
When trading in foreign currency, the currencies will always be quoted in pairs. An example of a currency pair is ZAR/USD- which is the South African Rand and the US Dollar currency pair. The reason for quoting the currencies in pairs is because in every foreign exchange transaction, when you sell a currency, you are also simultaneously buying another currency. The first currency is known as the base currency and the second currency in the currency pair is called the counter currency. In our example, the ZAR is the base currency and the USD is the counter currency. When you buy foreign currency, the exchange rate is what tells you how much you have to pay in units of the quote currency. When selling, the exchange rate tells you how many units of the counter currency you will get for selling one unit of the base currency.
As a trader, you are advised to buy the currency pair if you believe the base currency will gain value in relation to the counter currency. If you think that the base currency will depreciate or lose value, you must sell the pair. This is how the trading process goes and this also is how traders make their profit. In any case, you will need to make sure that you do a detailed research about the forex market before you start using real money.