What is Forex Trading And How Does it Work in Nigeria

What is Forex Trading

Today’s post is going to address the question of what is forex trading and how does it work holistically. It could be you have heard so much about forex from your friends or you have seen forex adverts severally, which lead to this question.

Whichever way, this post will provide you with the real answer to your question what is forex trading and how does it work.

Forex trading is one of the online businesses you can start from the comfort of your home. As the name implies, it is a currency trading market that traders around the world spend over $6 trillion daily.

In other words, it is a market that involves the exchange of currencies or trading of one currency against another among traders (buyers and sellers) at an agreed price.

Assuming you traveled abroad and there is a need for you to use the currency of the country you visited, then you need to change your own currency to that of the country you visited. That act of converting your money to that of the country currency is known as foreign exchange.

But as per forex trading, you exchange your money with the sole aim of making a profit with time.  In this case, you don’t need to travel to trade forex instead you need a platform to trade.

Due to some economic activities, political issues and natural disasters, countries’ currency strength may appreciate or depreciate.

So, if you are in tune with the situation of the economic situation of the countries then you can easily cash in by buying the currency with the hope of rising or selling it off with the hope that the economy will lose with time.

In summary, is the act of buying and selling of currencies online through a reputable platform.

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How Does Forex Trading Work?

The working principle of forex trading involves 3 major things, which are you, money, and broker. Let’s take a deep look into the 3 major elements that make forex trading work.

What is Forex Trading And How Does it Work?

You

Forex trading works in the world through the individual effort of traders. This means you will soon be part of the traders that make money online trading forex.

To be successful you need to take accurate knowledge of how trading forex work, which is what you are reading now.

This means you need time to study the technicalities and terms used in the forex trading world. Some of the terms you need to understand are:

  • Technical analysis
  • Fundamental analysis
  • PIP
  • Currency pairs
  • Take profit
  • Stop loss
  • Instant market execution
  • Pending order and many more

In other words, you need a comprehensive forex trading training to make money trading forex.

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Assuming that you have acquired the required knowledge, the next thing is understanding how to place a trade from the platform of a broker. In that case, you need money, and that takes us to the next element, which is money.

What is Forex Trading And How Does it Work?

Money

The good news is that you can start trading forex with virtual money in order to test your understanding of the market. But when it comes to making real money, you need money.

You need money to make money trading forex. This is how it works. You will give your money to a registered broker then the broker will convert your local currency to either dollar or Euro equivalent as the case may be.

Then the broker will provide you a platform through which you will either buy or sell other currencies with the anticipation of gaining.

The currencies are traded in pairs. This means you are comparing the strength of two currencies to ascertain which will gain or lose over time.

There are major currencies and minor currencies. The major currencies are currencies that widely trade and always have more liquidity in the market.

While the minor currencies are currencies that do not include the US dollar, they are sometimes referred to as cross-currency pairs.

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Examples of Major currency pairs are:

  • EUR/USD
  • USD/CHF
  • AUD/USD

EUR/USD stands for Euro trading against US dollar

USD/CHF stands for US dollar trading against the Swiss franc

AUD/USD stands for Australian dollar trading against the US dollar

The first currencies on the pairs are called base currencies while the second currencies are called quote currencies.

This entails that if you are trading EUR/USD, EUR is the base currency while USD is the quote currency.

The base currency is the basis of trading. This means you should either sell or buy the base currency at any given time you want to trade.

Fundamental Analysis

To trade forex successfully you must understand the fundamental factors that determine the upward and downward movement of the currency pairs. Assuming you want to trade EUR/USD, you must be sure of the political, economic, and natural conditions of the country’s pair you want to trade.

In other words, to trade a currency pair you must compare the economic, political, and natural strength of the countries involved. For example, if European countries are having serious political problems, it then means it will be wise to sell off EUR while buying USD because the US dollar must appreciate.

Technical Analysis  

Trading using technical analysis means studying the trading chart pattern and trade based on some formations that have been proven to be a profitable trading pattern. There are so many chart patterns that traders all over the world trade accordingly.

Examples of such patterns are a double top, bullish engulfing pattern, bearish engulfing pattern, and many more. 90% of traders trade based on technical analysis.

What is Forex Trading And How Does it Work?

 Broker

 

It is obvious that at this time, you are aware that the brokers are those that provide the platform on which you can trade. The image below is the typical representation of what a brokers platform looks like.

What is Forex Trading And How Does it Work

 

The platform is called MT4 or meta trader. Once you sign up with a broker, you will have instant access to download the broker’s MT4. It is on this platform you will see the converted amount of money you paid to the broker.

It is from this platform you can place a buy or sell trade. The platform has a lot of features that will help you make informed trading decisions. In fact, the platform comes with built-in technical indicators that guide traders to trade successfully.

What is Forex Trading And How Does it Work –Wrap Up

Obviously forex trading is an online business that entails simultaneously trading currency pairs. It is the largest market in the world commanding over $6 trillion daily. You need three things to make it work, which are, accurate knowledge, money, and a broker.

So if you are a beginner searching for what is forex trading and how does it work, I believe you have it all here. But I will not end this article without sounding a very serious warning to you.

Forex trading is not a get rich quick business. In fact, it is one of the riskiest businesses you can think of. On the other hand, it is one of the most profitable business if you learn and understand how it works.

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It is not the business for unemployed because you need time for each trade you execute to mature. If you are desperately in need of money to pay your bills then the forex trading environment is not conducive for you.

 

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