Forex Trading Explained: The Basics Of Investing In The Foreign Exchange Market

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Did you know you can make money by investing in foreign currencies? Learn about the basics of forex trading here!

We all know how currency prices fluctuate constantly. But did you know that investing in foreign currency is a good way to make money?

The foreign exchange market is the world's largest financial market, with trillions of dollars being traded all over the world every day. And because the forex market is open 24 hours a day (except for weekends), currency prices are constantly changing. It's a dynamic, exciting market that isn't as complicated as it seems.

Governments, businesses, and individual investors participate in the forex market. Investors in the foreign exchange (or forex) market make a profit when they buy (go long) a currency and sell (go short) in another after its value increases.

What investors look out for are trends that help them predict whether or not a currency will become stronger or weaker in comparison to another.

Forex Trading Explained: The Basics Of Investing In The Foreign Exchange Market

Basically, forex trading is betting on a country's economy.

For example, let's say you that you think the Euro will become stronger in comparison to the US dollar. In that case, you'd invest in a EUR/USD currency pair, which means that you buy Euros and sell in US dollars. (If you buy in Us dollars and sell in Euros, the currency pair would be inverted: USD/EUR.)

If the Euro strengthens against the US dollar, as you predicted, then you gain money. But if it doesn't, you lose money.

Why trade in forex?

1. You don't need a lot of money to start. The main reason why many choose to invest in the forex market is because of how easy it is to start as a currency trader. Some brokers don't require a minimum deposit for you to open an account, making it super accessible.

2. The 24-hour market. Because the forex market is basically open 24 hours a day from Monday to Friday, you get a lot of flexibility as to when you actually make your trades.

3. Liquidity. The enormous size of the forex market makes it possible for you to buy and sell instantly. Plus, you don't have to feel stuck in a trade—you can choose to close a trade once you've reached a target or if you're losing money.

To learn more about the basics of forex trading, watch the video below: