How Does Forex Trading Work? A Basic Overview

Forex trading involves a lot of complicated terms that might put off new investors who aren’t too familiar with financial markets. This article aims to simplify the process for you. In laymen’s terms, Forex trading works by purchasing on currency and then trading it on for another currency when the exchange rate is high. 

The Mechanism Of Forex

Forex always exists in groups of two currencies. The first currency that appears in this currency is called the base currency, while the latter is called the quote or counter currency. If we saw USD to EUR, the base currency here is the US Dollar and the quote currency is the Euro. Simplifying the meaning of this term, if the USD/EUR ratio 1.5, this means that you need 1.5 Euros to purchase one dollar. Forex trading is based on this very ratio. You can either take a long or a short position based on this ratio. When you take a long position, you expect the fact that the base currency will rise in value or the quote currency will fall, which leads to an increase in the ratio. The rise of the ratio indicates a profit for you. In a short position, Forex traders expect this ratio to fall. By selling their Forex they expect the Forex rate to lower so that they can buy it even cheaper later in the future, and then make a profit when the Forex rate eventually starts rising again. 

For Forex traders who set up a spending margin, a margin level (ระดับmargin margin level คือ, which is the term in Thai) means that percentage of their funds that they are free to invest. This means that investors set a margin for themselves beyond which they do not invest, to minimize the possible risk. It also helps you develop trading discipline and not overinvest into Forex. 

The Argument For Bitcoin

Bitcoin as well as other cryptocurrencies are slowly becoming popular alternatives to Forex trading. As such, converting your Forex money into Bitcoin is a path that many investors are considering due to the ballooning price of Bitcoin. However, Bitcoin conversion (แปลงบิทคอยน์, term in Thai) is risky. For starters, it is outlawed in several countries, so there are legal repercussions. Secondly, there is the risk of cyber attacks and hacking. Lastly, Bitcoin is a very variable currency so it is very volatile and unreliable. 

Forex trading is a great trading option for budding investors, with its low barriers of entry and high profitability potential. With this knowledge, we hope you too can invest and win!