Forex Trading: What is It & How It Works

When it comes to money, people are always looking for ways in which they can invest it or watch it grow. Due to the nature of inflation within our economy, holding onto money can be quite dangerous as it will lose value over time. The question that you have to ask then is what should you be investing your money in or what should you be doing with your money?

If you are looking for safe plays, you can look into putting your money into high-interest savings accounts or mutual bonds where they gradually grow. If you are looking for something a little more risky but with potential for massive earnings, you should consider looking at one of the three major markets. When it comes to market trading, people know all about the stock market and cryptomarket, however few people know about the third the forex trading market.

When used correctly, you can stand to make a lot of money in the forex market just like with the other two. With enough research and practice you can soon find your money growing into something much larger. Here is a brief rundown of what the forex trading market is and how it works.

What Is It

The first thing you have to understand if you want to get into forex trading is what it is exactly. The people at forexsuggest mention that Forex stands for foreign exchange and the market is one where you can trade currency pairs for profit. By finding the right platform to trade on and making the right decisions, you can make a lot of money by doing some trading. In order to fully understand how to profit off the forex market, you are going to have to completely understand what currency pairs are and how you can use them.

Currency Pairs

Currency pairs are the relationship between two currencies expressed as a ratio. Let’s say for example the EUR/USD ratio is 1:1. This means that for every euro you have, you can get one US dollar. The market isn’t that simple though and the ratio is never really one to one and will always fluctuate.

When trading on the forex, you must always look for currency pairs if you want to move your money around. With some of the more exotic currencies out there, the only way you will be able to obtain them is by first getting USD or EUR. These are the two major currencies on the market and almost all currencies listed on the market are paired with these two. How does this work?

Let’s say you are a Canadian citizen who has CAD and are looking to purchase a more exotic currency on the market. You are first going to have to purchase a CAD/USD pair which will give your portfolio some USD, and then find a USD pairing to the currency you are looking for. It can be an annoying extra step, but it makes sense as giving every currency every possible pairing would result in a chaotic market.

How Do Your Profit From Pairings

As mentioned, pairings are never static and are constantly moving throughout the day. In fact the currency pairings have probably changed in the time that you are reading this article. Just like with the stock market, the goal with the forex market is to buy in when you feel a currency pair is undervalued. As it grows, you can then look to sell it off at a profit and potentially re-enter the market with a different pair.

While this all sounds simple, there is a lot more difficulty to the matter. Markets can be difficult to predict as there are many things going on in the world at any given point. The nice thing about forex though is that you can do your research to make basic predictions. These currencies are often backed by the economy of the country and if the country is doing well, you can expect the currency to be gaining value as well. When multiple countries are all performing well, it is up to you to make a decision on who is outperforming who and then use that information to invest.

The other beautiful thing about the forex market is that it often cannot be influenced by one major company. With things like the stock market and the cryptomarket, you can find one company making a big push to scare others into either selling or buying a stock or coin. This can have massive market ramifications and can end up hurting you if you invest at the wrong time. We saw something like this when GME was short squeezed earlier this year. Although some companies lost a lot of money, others stepped in and with their massive amount of wealth were able to dictate what the stock did to a certain extent and scare off other potential investors. With the forex market, you don’t have to worry about too many hands in the pot. Because the market is so huge, there should never be a moment where one company is able to cause a massive switch.

We do recommend taking the time to practice forex trading before you jump right into it, however. While there is a potential for extreme profits, you can also find yourself losing a lot of money in the blink of an eye. Taking the time to understand how these pairings work and trying it out for yourself beforehand on a demo account will ensure that you know what you are doing.

When it comes to forex trading, there is plenty to learn about and research if you want to be profitable. Make sure that you are only investing with money that you can afford to lose. Other than that, as long as you are constantly paying attention to the market and making safe decisions, you should be able to see a slow and steady rise to your money. If you want to take things a little further, you can look to leverage currencies as well. These come with much more risk, but much more profit as well. How do you plan on using the forex market?