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Forex currency trading guides for beginners - How do you make money in forex?

How do I make money in Forex Trading? 

In forex, currency is either bought or sold.

Remember that in forex, currencies are always traded in pairs. When you trade forex, you are exchanging one currency for another.

So how does one make money in a forex trade?

When you buy a currency pair, you make money when the price moves upwards. So in currency trading, you buy at a lower price and sell at a higher price to make profit.

When you sell a currency pair, you make money when the price drops. so you sell at a higher price and buy back the currency at a lower price to make profit. We'll take a look at examples of this in the table below.

how money is made in forex

Reading a Forex Quote

Forex currency quotes are always given in pairs. This is because, as mentioned above, when you make a forex tranaction, you are buying one currency and selling another currency at the same time.

Take a look at the example quote below.

example currency quote

In a forex quote, the currency to the left is know as the base currency and the one to the right is the counter or quote currency.

In buy trade, the given exchange rate lets you know how much of the quote currency you have to pay to buy a unit of the base currency. In the above, 1.51258 USD buys you 1 GBP

In a sell trade, the given exchange rate indicates how much of the quote currency you get for sell a unit of the base currency. So in the example above, you get 1.51258 USD if you sell 1 GBP.

In a forex transaction, the base currency is the main currency in the transaction. Wnen you buy GBP/USD, you are buying GBP and selling USD. When you sell a GBP/USD currency pair, you are selling GBP and buying USD.

You will buy GBP/USD pair if you believe the GBP will increase in value in relation to the USD. Meaning you expect the GBP/USD exchange rate to go up.

You will sell GBP/USD currency pair if you believe the GBP will decrease in value in relation to the USD. Meaning you expect the GBP/USD exchange rate to drop.

Long/Short

Before you enter a trade, you should first know if you should buy or sell.

In buying a currency pair, you expect the base currency to increase in value. You then sell it at the higher value to make money. In forex lingo, this is referred to "going long" or taking a "long position". So long = buy.

In selling a currency pair, you expect the base currency to decrease in value. You then buy back the currency at a lower price to make money. In forex lingo, we reffer to this as "going short" or taking a "short position". So short = sell.

Bid/Ask

Sample forex quote

When you look at any trading platform, all currency quotes are given with two prices. These are the bid and ask prices. Generally, the bid is always lower thn the ask.

The bid is the price the broker is ready to pay for the base currency in exchange for the quote currency. So the bid is the best price at which you are going to sell to the market.

In the above example, the bid price is 1.34568 and the ask is 1.34588.

Continue to the next lesson to know exactly how you make money trading forex.

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