You might have heard from friends about how lucrative and beneficial that forex trading is. When people trade in forex — commonly titled FX — they are purchasing and peddling currencies over a foreign exchange marketplace.
It’s the biggest financial marketplace on the globe but most investors shun away from getting into forex, partly because it’s highly abstract and intricate.
Forex trading can be very lucrative, and it only requires a limited initial investment. This is because trading forex is more advantageous than stock trading in many ways.
Since the forex market occurs over several international markets and rarely closes, it allows investors to execute trades at any time of the day. This opens new opportunities to automate forex tradings around the clock. Forex trading bots such as Fintech Limited allows investors to earn profits on autopilot using advanced trading algorithms.
Bid and ask prices
Similar to stock trading, the bid and ask prices are crucial to a currency quote. Quotes are tied to the base currency, and understanding quotes can become confusing because they signify the dealer’s position.
The bid price is the amount the trader will or pays for, or bid for it. The asking price is the amount that the trader will ask for, or sell for it.
What is pip
Understanding Forex trading is a complex process as there are many terms that need to be studied. In stock trading, one may usually hear that a stock’s price went up by 1 point, or $1.
A pip is the forex version of a point: the smallest possible price movement within a pair of currencies.
How do FX investors profit
Forex trading is can be risky if not managed properly. Investors are making bets that what they buy will increase in value, which makes it a speculative type of investment. In forex, you would want the currency you have bought to go up in relation to the currency you are selling for. If you a lot of a currency and it goes up 1 pip, you will earn $1. If it goes down 1 pip, you lose $1.
Using leverage
The term leverage refers to the act of borrowing money to trade more currency pairs than your account value. The usual leverage size investors can make is up to 50 times larger than the balance that you hold.
Leverage allows investors to buy more currencies with less money upfront, and increase their profits if the currency they buy makes money. However, the drawback is leveraging will also magnify your losses if your currency buy goes down.
In conclusion, forex may be a risky form of investment, but it also lets you become a quick and easy way to earn profits. If you can manage your risk using trading tools, you can reduce your losses and make consistent profits every day. Whether you are looking to invest in the short term or long term, forex is a viable option if you take the time to understand the concepts behind it.
