You want to know how to make money trading Forex? First, you need to know what is Forex trading. How does Forex trading work? In the foreign exchange market, you buy or sell currencies.

ALSO READ: How to Open a Forex Trading Account in South Africa

Forex is all about currencies. You place a trade in the forex market. Forex is not different from stock trading. If you know how to trade stock, you ill find it easy to learn how to make money through the foreign exchange market.

If you find it hard to pick up trading quickly, you should consider attending Forex trading courses. You can also study short Forex course at UNISA.

The aim of Forex trading is to exchange one currency for another with an assumption that the price will change. Most importantly if you belief that the value of the currency you purchased will rise compare to the one you sold.

Example of a Forex Trade adapted from Baypips

James buys 10 000 euros at the EUR/USD exchange rate of 1.1800. The Euro is +10 000 while the US Dollar is -11,800*. (*EUR 10,000 x 1.18 = US $11 800)

A few weeks later, James exchange his 10 000 EUR back into USD at the exchange rate of 1.2500. Now you will have -10 000 EUR and +12,500** U.S dollar. (** EUR 10,000 x 1.25 = US $12,500). At the end of your trade, you will make a profit of $700.

In finance, an exchange rate is the rate at which one currency will be exchanged for another.

How to Read a Forex Quote

In Forex, currencies are always quoted in pairs such as EUR/USD or GBP/USD.

What is a Forex quote? By definition a Forex quote is the price of one currency in relation to another currency. Forex quotes always include currency pairs since you are purchasing one currency by selling another. For example, the price of one U.S Dollar is 14 63 ZAR when viewing  the USD/ZAR currency pair.

usd to zar

What is a currency pair? In the foreign exchange market, a currency pair is the quotation of the relative value of a currency unit against the value of another currency.

In the above example, the USD is the Base currency and the South African Rand is the Quote currency.

Explaining the Base and Quote Currency

Before anything else, you need to decide if you want to buy or sell. If you want to buy, it means you buy the base currency (the US Dollar). You wish the US Dollar could increase in value so that you can sell it at a higher price.

In forex language, buying is called “long” and selling is called “short”.

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