Forex FAQs Answered in the Simplest Way
Published on May 16th, 2015 | by Joan Makai
Despite the great challenge it poses and even greater risks, more and more people are giving Forex trading a try these days. After all, there is nothing more attractive than doubling or tripling your money overnight right? And yes, this happens in the much celebrated Forex trading.
But the world of currency exchange is so complicated; it confuses a lot of people attempting to participate in the trading process. To help you understand it more, below are some of the most frequently asked questions. And we’ve got the most straightforward answers to it.
- What is Forex Trading?
Foreign Exchange trading is basically the buying and selling of currency of two different countries.
- What Do I Trade?
Trading currency is usually done by pair. The most common is EUR/USD (Euro and US Dollars). The others are USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD.
- How Do You Trade?
The whole idea is really confusing for newbies. Just think of it this way: you buy money – or better yet currency – with money you have. Because this is not a physical trade, you don’t get to touch that money you bought. Everything happens electronically inside your trading account.
- Do I Really Need a Broker?
Yes, you do. First of all, it’s hard to work on something as complicated as foreign currency without an expert at your back. Secondly, these brokers have connections you probably don’t have. So you need one not just to lessen the work but also to have an expert that will do the trade for you.
- How Does It Work?
Let’s say you’re trading USD against EUR. If the value of your money (USD) increases against EUR, you earn. If it doesn’t, you lose.
- How Do You Choose What Currency to Trade?
US Dollar is often the choice of most people in Forex since it is paired with several other currencies and is therefore easier to trade. But it would be better to do your market research so that you can make a better decision in trading.
- When Do You Buy? When Do You Sell?
Essentially speaking, if the prices of the currency you’re buying goes down, you buy. Hopefully it continues to increase in a few days so that you earn from it once you convert.
While earning a lot in Forex is very possible, some people lose money here too – a lot of it. And usually, the cause of this is lack of knowledge. There are so much more one should know about Forex trading. Those questions answered above are just the tip of the iceberg, so to say. Do what you must to learn more about this before you start trading and once you venture in the world of Forex don’t forget to exercise caution in order to minimize the risk. Trade only what you can afford to lose and never delve on money that is not meant to be used for this investment.