How do you trade Forex?

In the Forex market, you buy or sell currencies.

Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets,  so if you have any experience in trading, you should be able to pick it up pretty quickly.

The object of forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.

Example: You have 5000$ Account.
You estimate that the Euro will rise at price versus Dollar.
In that case, if you buy euro against dollar you will gain profit.

The main aspects of Forex market

 

The currency quotation is the cost of the currency expressed in another one (i.e. it shows how the current currency is more expensive than other / in our example on EUR/USD at the quotation of 1.3100 it will show that the EUR is 1.31 times more expensive than USD);

The currency quotations given by brokers usually looks like:

1.3100/1.3103 -this are Bid/Ask prices.

Bid — sell price (You can sell the currency pair at this price)
Ask — buy price (You can buy the currency pair at this price)
Spread — difference between the sell and buy prices (1.3103 — 1.3100 = 0.0003, or 3 points (3 pips))
Lot — the minimum operation value of standard trade contract.
1 lot — 100.000 basic currency (in our example it will equal 100.000 EUR)
0.1 lot — 10.000 basic currency (in our example it will equal 10.000 EUR)
0.5 lot — 50 000 basic currency.
Point (pip) — The minimal change of the currency pairs price.
1 point — 0.01 cent
1 point — $0.0001