Whether you are familiar with forex trading or not, it is also a great way to profit from investing. Therefore, before understanding this, we have to understand that each country has its own different currency. And the currency of each nation is weak and strong on the basis of value against each other. It is meant to say that in this era of globalization, business can be done anywhere in the whole world and the internet has made it easier.
Today, if a person wants, sitting in India can earn foreign currency like Dollar, Euro, Pound etc. All this has become possible by the internet.
What is Forex Trading?
In forex trading, the first word forex means foreign exchange. In simple words, forex trading means to trade different foreign currencies amongst each other i.e. under this process the currencies of different countries are traded due to their increasing and decreasing in value. Any person who wants to make any kind of deal from abroad may need the currency of that country to buy that deal.
Whether someone has gone for a vacation, or wants to buy something from abroad, or is paying for some service, etc., he needs the currency of that country. For example: A person may need US Dollars to pay the fees for a college located in the US, as the college located in the US will not accept fees in Indian Rupees. So in order to pay in dollars, the first person has to buy US Dollars.
To buy these, the person has to pay in Indian Rupees based on the dollar value fixed at that time. It is only because of these requirements that forex trading begins, where foreign exchange is sold and exchanged. And where the person received the US Dollar by giving Indian Rupee, it is called an Exchange. In this situation, US Dollars will be bought by this exchange from the foreign exchange market. In simple words, the trading of forex is called forex trading.
How does forex trading work?
Forex trading is also similar to equity trading, with the only difference being that in equity trading, the price of the stock is the deciding factor for earning or loss. So, in forex trading, the exchange price plays a decisive role. To make money from forex trading, one can buy any currency as per his requirement and knowledge. You can read the examples given below for better understanding.
Let’s say a person named Raj wants to take advantage of the rising dollar prices as the dollar is trading at Rs 70 today. Pramod thinks on the basis of his knowledge and experience that it can go up to Rs.73 in three months. So in this situation one can buy USD and sell it when it reaches Rs.73 after three months. In this way a person will be able to earn up to 3000 rupees for every 1000 $.
How to start forex trading online?
To open a forex trading account, visit the broker’s website, and apply online or offline.
- Fill the form and attach important documents like ID Proof (PAN Card, Voter ID Card, Driving License, Aadhar Card) etc.
- Address proof (telephone bill, utility bill, ration card, registered lease or sale agreement) and income proof (current ITR, salary slip, Form-16, account statement, etc.).
- After this, you can verify all your account details on call or by visiting the office.
- Upon in-person verification, your account is created, then a confirmation email is sent to your registered email address.
- That mail contains your login ID and password which you can use to access your trading account.
Types of orders in forex trading
To trade forex, you are given a variety of order types such as:
Market order or limit order
This is an order that you can use to open a new, long or short position. In a market order, you can take a position at the current exchange rate. Then your orders will be completed in no time.
For example, the bid price for EUR/INR is 1.2140, and the ask price is 1.2142. If you want to buy this currency pair at this current price, it will be sold to you.
On the other hand, limit orders give you the opportunity to set your own price for the trade. Your order is completed only when your desired price is met.
You can place a buy limit at or below the specified price and place a sell limit order at or above the specified price.
Stop entry order
Stop orders are another order type in which the order is executed only when the price reaches the stop price.
In this, you can place a buy order only when the price rises to the stop price and continue to sell and move when the stop price falls and continues to fall further.
For example, GBP/INR is trading at 1.5050 and continues to rise. After that, you can use your belief to set a stop entry order at 1.5060 and thus buy it once the price reaches 1.5060.
Stop loss order
To limit your losses in forex trading, you are provided with a stop-loss order. In the case of long positions, you can place sell stop orders, while in short positions you can buy stop orders.
For example, you buy EUR/INR at 1.2230, but to limit your loss, you set a stop loss at 1.2200. Thus, if the market reverses the trend, in this case the price reaches 1.2200 and the order is automatically placed. Thus it protects you from heavy losses.
Trailing stop loss
Another essential type of order type that can help you stay away from huge losses is the reverse market trend.
For example, using your 20’s trailing stop, decide to move to USD/INR at 90.80. This means that as per the current value, your stop-loss is 91.00, but if the price goes down and hits 90.60, the stop-loss will move down to 90.80.
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