How To Trade Forex?

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In forex, traders attempt to profit by actively speculating on the direction of exchange rate between a currency pair. Forex traders will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future.

Forex pair and exchange rate

FOREX PAIR
All forex trades involve two currencies, because the value of a currency is compared to another currency. For example EURUSD, the most-traded currency pair in the world.

  • EUR (Euro) is the first currency in the pair (the base currency)
  • USD (US Dollar) is the second currency (the counter currency)

 

EXCHANGE RATE
Exchange rate is the value of a currency expressed in other currency. For example EURUSD exchange rate refers to the value of 1 Euro expressed in US Dollar. When you see EURUSD at 1.0559, it means you can exchange 1 Euro for 1.0559 US Dollar.

The exchange rate always fluctuates, influenced by a multitude of different factors, from international trade or investment flows to economic or political conditions. Forex price movements are triggered by currencies either appreciating in value (strengthening) or depreciating in value (weakening).

  • EURUSD for example was to go up, this would indicate that the base currency (Euro) was strengthening, whilst the counter currency (US Dollar) was weakening.
  • EURUSD for example was to fall, this would indicate that the base currency (Euro) was weakening, whilst the counter currency (US Dollar) was strengthening.