At the outset, in any forex trade that is executed, traders can earn or lose money due to the market fluctuations that occurs to the buy and sell rates as compared to what the original rates were when you initially entered into a position. If your trades were to earn, then the currency that is bought would have to increase in value so that when you exchange back you would get more than what you put in. In other words, buy low, sell high. If this was not the case (which can be true if you do not follow a trading strategy) then the currency that was bought might have grown weaker.
Currencies will always have an economy behind them which forms one of the driving factors in influencing the exchange rates and if you put two currencies together (which is always the case) you are trading two economies side by side. By doing so you are able to create a comparison between the 2 currencies.
This price comparison always changes since all economies are constantly changing. Due to this constant change the comparison rates of a currency to the other will never stay the same. In another context what happens is that the exchange rates would keep on changing.
Since the exchange rates are always fluctuating, it would mean that one currency will never stay in the same exchange rate with another currency. For example: currency A might be in a 3:2 ratio with currency B but that will never last forever.
Currency rates always move and it might even go back to being 3:2 but the fact will always remain that currency rates keep changing.
There are a lot of things that takes place when you execute a forex trade. While understanding the intricacies of forex trading might not seem very interesting, if you were to look at things in a different perspective you would notice that having more knowledge about forex trading is beneficial.
First of all when you trade forex you must have the amount that you want to trade with. You can’t be in debt in forex because you are only allowed to trade with the money that you already have.
Once you select your trades the money that you put in will immediately have the spread deducted from it. This spread will cover the expenses of the brokers and the brokerages. Click here to learn more about Forex Spreads.
Whatever is left from the initial amount is then exchanged to the partner currency of the trade that you chose. Once the the exchange has been done, the value of the currencies will then begin to shift.
As a thumbrule, never invest in forex unless you have extra money to spare. Forex trading is quite volatile and unless you are experienced and know how to trade, it is advisable to apply caution
If the movement of the market is in your favor the likely outcome would be that the amount that you get when you exchange back would be more compared to what you originally put in. If this above scenario is true, then the moment that you exchange back you are supposed to receive more than what you initially put in.
But if the market moved against your favor then the result would be that the amount that you get when you exchange back would be less compared to what you initially put in. If this was the case then the moment you switch to the original currency, you would most likely get less than what you put in the first place.
If you were to hit stop loss or take profit rates before you exit your trade then the brokerages would usually exit your trade for you.
In layman’s terms forex trading can be explained as: “You invest money for a currency pair, the spread or broker’s commission is deducted. After which your investment is then exchanged with another currency in the pair and is then exchanged back by your choice or once the value is too low that there is nothing left or once your take profit rate is achieved.
Forex trading involves a lot of emotions that would come out when you trade forex. There’s happiness and joy when you win trades and there are moments of sadness and regret when you lose trades, but there is certainly one attitude that you should always have when trading is of course fear. Obviously everyone wants to succeed and the sound of a 100% win rate is just too good to let go and of course let’s not forget the fear of losing money. Due to these common emotions traders often get a rough start in trading.
It can’t be helped that every time you look at the results of your trade that you would be overflowing with emotions but you should always remember that these emotions should only be released after entering trades and not during or before.
One of the biggest mistakes that traders do is to allow emotions to take over while trading. A lot of people will enter trades simply because their gut tells them to. Although this might seem like a good idea the truth is the forex market seems to know when you’re doing this because the market would usually go the other way. Such an event infers that you are trading with your heart and not your mind. This is actually the reason why a lot of people are looking for forex auto trading software. Since machines have no emotions then it’s not possible for their judgment to be clouded by emotion; all their decisions would rely on calculations. Emotions play a critical factor towards the success in forex trading. There are many books, courses and tutorials that touch upon this subject which gives enough impetus that you cannot ignore emotions when trading forex.
But then again why is it that there are more people that rely on their strategies rather than famed software? The reason for this is because the human mind is still better than a computer because it can analyze things using historical data and not just using calculations.
In short the best trading attitude would be that you not let your emotions cloud your judgement. Do not over think and just accept the results; no use for getting mad or ecstatic.