How does forex trading work?

When trading forex, we are operating in one of the busiest markets today, with an average turnover of over 5 trillion USD. It is a market that is not centralized in any specific exchange, so it is actually open 24 hours a day. Thus, the forex schedule is specified from Sunday night to Friday night as well. Currency exchange between companies, individuals, and organizations is enormous and attempts to take advantage of fluctuations in exchange rates.

Operations in Forex

To trade in forex, operations are carried out in currency pairs such as GBP/USD. You can speculate if the price of that currency or another is going to go up or down compared to the price in another country and based on that, operate. In our forex example, the first currency GBP will be the β€œbase currency” and the second USD will be the β€œquote currency”.

Continuing with the example, if we believe that GBP is going to rise in price against USD, it will be necessary to maintain a long position. That is, the currency pair will be bought, on the other hand, if the opposite can happen, we will remain in a short position that will imply selling. With this in mind, currency pairs for forex trading are divided into the following types:

  • Major pairs: The most common currency pairs are USD / JPY, GBP / USD and AUS / USD, and consequently, the most used when trading forex.
  • Minors pairs: They do not usually contain USD and are less frequent, as the most common examples are EUR / DDK and AUD / NZD.
  • Exotic pairs: It is the combination of a major currency with a minor currency, hence the name “exotic”, some examples are USD / ZAR or USD / CHF.

A concept that must be very clear in forex trading is the strong or weak nature of the currency with which we will operate. Consequently, a strong currency will make exports expensive and imports cheaper. On the other hand, a weak currency will mean that exports are cheaper and imports are more expensive.

The exchange of currencies in the countries will help to establish the commercial relationship between these two countries. For example, if the USD is depreciated against the EUR, it will be cheaper to buy in dollars and sell in euros by pure logic.

Establish strategies in forex trading

Through technical analysis, a multitude of strategies can be established to help obtain good results in forex. It is highly advisable to do technical and fundamental analysis, however many traders prefer to focus on indicators and signals.

These signals can offer clues to determine the entry and exit point in the market either manually or automatically. This type of operation is very common in day traders, who on the same day open and close positions to take advantage of small fluctuations.

Using manual methods and looking at graphs, we obtain average data, and we can identify buying and selling opportunities. On the other hand, with automated trading what is done is set a robot to use algorithms to execute operations depending on the signals.

Leverage on trading forex

Leveragein forex is a methodology by which the trader in exchange for a percentage of the investment is allowed to obtain more exposure in the currency pairs. These percentages are low, being between 3% and 5% with what this is a very common practice in forex trading.

tradEAsy: training for traders

If you are curious about forex trading and want to enter this world, at TradEAsywe are waiting for you. We offer a fantastic automated trading course to learn how to trade this way. We will go progressively so it is perfect for those who are beginners. It is a very practice-oriented course where the necessary concepts will be explained through examples.

It is aimed at people who have already traded on the stock market and have basic notions of technical analysis. As we have already explained, the logical evolution goes from manual trading to automated trading in order to understand what is intended. In our course, programming knowledge is not necessary, nor is it necessary to master automated trading.

We divide the training in the theoretical part into more than 30 explanatory videos, with almost 7 hours structured in 6 modules. Everything you need to understand and master forex trading automatically will be covered in the training. So, when you finish this course, we are sure that you will want to follow the training. Do not hesitate and schedule a call with our commercial department, they will help you.

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