When it comes to forex trading, India takes the lead and trading in the foreign exchange market is pretty simple. The goal of forex trading is to facilitate the exchange of one currency into another. The expectation that arises out of this action is that prices will change. In particular, the value of the currency you buy will rise, compared to the one sold. This is common sense and explains how you can profit by trading. If you want to make a bundle of cash by trading forex, you need your basics right.
Why a lot of Indians have taken to online currency trading is because it's available to you at a click. Here are the basics to get your knowledge base in order, to start:
1. Exchange Rate - You need to know about the exchange rate which is merely the ratio of any given currency valued against another currency. For instance, the USD/CHF exchange rate is an indicator of how many US dollars can buy one Swiss franc. Alternatively, it can also mean how many Swiss francs you need to purchase a US dollar.
2. Currency Pairing - When you go to a forex online trading portal, you will undoubtedly see that currencies appear in pairs. They are traded this way, such as JPY/INR (Japanese Yen/Indian Rupee). Three major pairing types exist - major pairs always include USD (US dollar) like USD/EUR, USD/INR, etc; minor pairs include major currencies excluding USD, like EUR/GBP; and exotic pairings constitute one major currency with a minor one, like USD/HKD.
3. Point in Price or PIP - This is the difference in values of currencies in a pair. For example, if the USD/INR rate shows as 74.001 today (i.e. 1 USD=74.001 INR), and yesterday it was 74.7002, the PIP works out to .0001. How much forex traders make depends on differences and when they buy/sell currencies.
4. Base and Quote Currency - When you view currency pairs, the currency that appears on the left of the ‘/’ is the base currency. The one on the right is known as the quote currency. The base acts as a reference and always has a value of 1. It indicates how much of the quote currency is required to buy 1 unit of the base. For example, if you purchase EUR/USD, this means that you are purchasing base currency and selling quote currency. Here is where how to make money on forex enters the picture. Forex traders will purchase pairs when they feel that base currencies will appreciate compared to quote currencies. Alternatively, forex traders are prone to SELL currencies in case they think base currencies will depreciate relative to quote currencies.
Whether, at first, you make money, currency trading is a way to get you started on the path. Knowing terms and concepts is key and since online trading is fairly easy for beginners, you can begin small and gain confidence.
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