Forex Trading: Are You Gaining or Losing?

By Damon Nelson

There is one huge market that is open to its clients 24 hours a day, 7 days a week. This market is none other than the Forex market. It is not similar with the usual market we frequent, as it does not carry any services, commodities and goods. Its sole role is to house the trading activities of currencies from different countries. Say, you wanted to buy Euros using your Canadian dollars, you may do so in this market. You may also purchase US dollars for some Japanese Yen. You must always be on your toes, as rates can change without prior notice. Hence, you must monitor the rates to determine if the currency you are buying or selling has increased or decreased its value.

Changes in the Forex market usually occur quickly and so it is important for traders to keep track of the market. Political and economic events can influence the changes in the Forex market. If you want to determine whether you're gaining or losing in Forex trading, this article can help you with the calculations.

Exchange rate has a great effect on Forex investment. To understand the real relationship between these two, you must make yourself familiar with the nature of Forex quotes. Similar to currency pairs, Forex quotes are also in twos or pairs. Let me show you an example:

1.Suppose the currency pair is USD (US dollar) and CAD (Canadian dollar):

The Forex quote for this pair is USD/CAD=170.50; this is interpreted as 'every one US dollar is equivalent to 170.50 CAD. The currency found at the left side is known as the base currency and it is always equivalent to 1. The currency found at the right side is called counter currency. The stronger currency is always the base currency and in this case, the USD. The Forex quote's central currency is USD and so you can find it in most Forex quotes.

How can you determine if you're earning profits or not? You can use another example.

2.This time use EUR to USD. Assuming that the Forex rate is 1.0857; in this example, the USD is the weaker currency. If you bought 1,000 Euros, you will need to pay $1,085.70. After a year, the Forex rate was at 1.2083 and this means that the Euro's value increased. If you decide to sell the 1,000 Euros now, you will get $1,208.30; now, in this transaction, you gained $122.60. What if the Forex rate a year after was 1.0576? This means that the Euro's value weakened. If you still decide to sell the 1,000 Euros, you will only receive $1,057.60 which means that you lost $28.10; did you get it?

Risk is a part of Forex trading which is also the situation with mutual funds and stocks. The unexpected changes and fluctuations of the exchange market is the root of the risk. Government bonds has low level risks but the returns is not as high as the profits in Forex market. The forex industry can give you high profits but you must be prepared of the risks involved.

You must set financial goals for the short term, as well as for the long term. By doing so, it will be much easier to balance the risks involved and the security. You will be able to conduct your trades with ease and comfort. Make use of all the available Forex trading tools so that you can make wise and profitable trades. After reading this article, you can already calculate if you're gaining profits or not. - 23218

About the Author:

Improve your returns from Forex trading with the help of Fap Turbo. Before you buy online products, watch Damon Nelson's Fast Video Reviews at FastVideoReview.com.