The very first question that comes to mind for any Forex trading beginner is, “what is Forex trading?”. To answer the question will start off with a definition of Forex trading. Forex trading is the buying and selling of currency pairs with the objective of making a profit.
A currency pair consists of, quite logically, two different currencies. For example the EURUSD is a Forex currency pair which consist of the Euro as well as the US dollar. In each currency pair one currency is bought while the other currency is sold. If you think about it this is done every day all around the world. If you happen to take a trip to Canada, for instance, you'll want to buy Canadian dollars using your US dollars. How many Canadian dollars you get for your US dollars is determined by the exchange rate at that particular moment in time. The exchange rates for currencies change constantly depending upon the strength and weakness of one currency in comparison to another.
Now we know that currency pairs are the financial instruments which are traded in Forex trading. We now need to know what a “trade” is. A trade is a transaction placed through your Forex broker. Forex trades come in two forms, either a buy trade or sell trade. If you are bullish the EURUSD then you would buy the EURUSD. Buying a currency pair is also referred to as “going long”. If on the other hand you are bearish the EURUSD then you would sell the EURUSD. Selling a currency pair is also referred to as “going short”.
What we have just looked at are two different “entry” trades…a “buy” entry as well as a “sell” entry. The entry is only one part of the Forex trade. A complete Forex trade consists of both an entry and an exit. It is essential to exit your trade in order to realize a profit or loss. Exiting the trade is also known as “closing” a trade.
In our buying trade example above we bought the EURUSD. In order for this trade to be profitable we would need to exit the trade when the EURUSD reaches a price level that is above our entry price. Conversely in order for our sell trade to be profitable we would need to exit the trade when the EURUSD reaches a price level that is below our entry price.
So in a nutshell we've covered what a basic Forex trade is. In order to be successful in Forex we need to accumulate profits in our Forex trading account. This means that we need to have enough winning Forex trades to accumulate the desired profits. You will also have losing trades in Forex trading. Don't be alarmed because losing trades are unavoidable. Once you put it into perspective you'll see the losing trades are just a natural part of doing business in the world of Forex trading. Your objective as a Forex trader is to have the sum total of your winning trades be greater and continue to be greater than the sum total of your losing trades. You may want to repeat that to yourself so that it sinks in. Why? Because many beginning traders believe that having a super high percentage of winning trades is the key to Forex trading success. Just keep in mind that as long as the total of your winners is greater than the total of your losers that you will continue to make money.
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