The rate at which one currency can be exchanged for another is called an exchange rate. As it always involves two currencies, the figures will always appear in pairs, for example EUR/JPY (the Euro against the Japanese Yen). Their rates will fluctuate according to economic issues such as like productions, inflations and political happenings across the globe. All of these factors come into play when buying or selling a pair of currencies
Learn the basics- terminology
In forex trading, the currency you are divesting (paying with) is called the base currency. The currency you are buying is referred to as the quote currency. As we have seen, you will be selling one type of currency with the aim of buying another. If you are buying base currency and selling quote currency, in our case selling Japanese yen to buy British pounds, this is called a long position. If you were buying quote currency and selling base currency (for example selling British pounds to buy Japanese yen) this would be called a short position.
The price at which a broker will buy base currency in return for the quote currency is called the bid price. The price that a forex broker offers to sell base currency in return for quote currency is called the ask price. The ask price is the best available price at which you are willing to buy from the forex market. The difference between the ask price and the bid price is referred to as a spread.
Decide upon which currencies you wish to sell
One way to decide which currency to pick is to make predictions regarding the economy. If you are of the opinion that the Japanese economy will weaken, resulting in a downturn for the Japanese yen, it would be sensible to get rid of your yen and buying currency from a county with a stronger economy.
You should also take into account the forex trading position of a country. If the particular country controls a lot of rare or in-demand goods, it is more likely to succeed in export trading. This advantage will give a boost to the economy, therefore the value of currency there will increase. Take note of economic reports- information on a country’s GDP can be valuable to the forex trader, as well as the inside scoop on issues such as inflation and unemployment, which can all affect currency values.
It’s also worth considering politics. If there is an election due in the country soon, traders will be hoping for an economically and financially responsible candidate to assume leadership, as this will give a boost to the currency. It will also appreciate if the new ruling party allows for more economic growth and trading.
Have discipline in your trading
One common mistake made by new forex traders is a lack of discipline. Your plans and predictions are only of value if you stick to them. Exchange rates can fluctuate wildly and sometimes the rates may jump above your original profit margins. The temptation is to hold out for even bigger profits, but without warning the rate could plunge again. Stay in profit for the first couple of months and you may be able to learn the tricks of the trade!