How You Make Money Trading Forex

How You Make Money Trading Forex

 

Buying and selling:  these are the basic concepts the Forex market revolves around.

Buying

If you bought an item of value, which can be anything like a car, house, jewelry, or stock, and its value goes up, you will make a profit if you sell it at the point when the price is up. The profit represents the difference between the current value of the item and the price you originally paid for to acquire it.  Trading in currencies works the same way.

Now, if you want to trade on the AUD/USD pair, you will make a profit if you sell the AUD if its price rises in relation to the USD. In this example, you buy AUD and sell USD at the same time.

If you buy the AUD/USD pair at 1.0625 and the price moves up to 1.0715, you will make a profit of 90 pips if you exit at that point. If the pair goes down to 1.0610, then you would have lost on the trade. The pair you are trading does not matter, you will make a profit as long as the currency you buy gains from the time it was bought.

Selling

Let’s say you are trading on the EUR/AUD currency pair. Here, you would be selling EUR and buying AUD simultaneously. If the AUD gains in relation to the EUR, you would make a profit.  If you sell the EUR/AUD pair at 1.2330, and the value drops to 1.2270 when you close your position, your profit would be 60 pips. If the pair is on the rise and you close at 1.2380, you would lose by 50 pips.

Keep in mind that you always buy or sell the first currency named in the pair (left side.) This is referred to as the base currency.  Buying the first currency means you are selling the second currency, which is referred to as the counter or cross currency. The reverse applies if you intend to sell the first currency.

So, how do you profit by selling? You may find the concept a bit more difficult to grasp than buying because it is based on the premise of selling an item that you borrowed in contrast to selling an item that you own.

When selling a currency pair, you are borrowing the currency to sell from your broker.  If the price goes down, you will sell it back to your broker for a lower price. Your profit will be the difference between the borrowed price and the selling price to your broker. Simply put, you are gaining profit from selling something of value that you don’t own.

Conclusion

To sum it all up, the trade will result to a profit if the currency pair goes on an uptrend.  You will likewise profit if you sell the pair when it goes down in value. Thats how you make money trading Forex

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