How does forex trading work?

As a forex trader, you are speculating on whether one currency will rise or fall in price against another currency.

So “forex trading” can be defined as the process of speculating on currency prices to try and make a profit.

The value of a currency is influenced by economic, political, geopolitical events, and trade and financial flows.

Placing a trade in the foreign exchange market is simple.

The mechanics of a trade are very similar to those found in other financial markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

And if you don’t, you’ll still be able to pick it up….as long as you finish School of Pipsology, our forex trading course!

The objective of forex trading is to exchange one currency for another in the expectation that the price will change.

More specifically, the currency you bought will increase in value compared to the one you sold.

Here’s an example:

Trader’s Action	EUR	USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800	+10,000	-11,800*
Two weeks later, you exchange your 10,000 euros back into U.S. dollars at the exchange rate of 1.2500	-10,000	+12,500**
You earn a profit of $700	0	+700

*EUR 10,000 x 1.18 = US $11,800
** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency.

For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.