Like the stock market, you can change the currency according to its value. (or where it goes). The big difference with Forex is that you can trade up or down with the same ease. If you believe that a currency increases the value, you can buy it. If you think the value is going down, you can sell it. In such a large market it is much easier to find a buyer when selling and a seller to buy than in other markets. You can find in the news that China has devalued its currency to attract more foreign companies to its country. If you think the trend continues, you could trade currencies and sell the Chinese currency for another currency, such as the US dollar. The more the Chinese currency depreciates against the dollar, the greater will be its benefits. If the Chinese currency gains value while it has its open sale position, its losses will increase and it will want to stop trading. Each currency trade involves two currencies when betting on the value of one currency against another. Think of the EUR / USD, the most operated currency pair in the world. The EUR, the first currency of the pair, is the base and the USD the counterpart. If you see a price on your platform, it costs a dollar in dollars. You will always see two prices, one is the purchase price and the other is the sale price. The difference between the two is propagation. When you click Buy or Sell, buy or sell the first currency of the pair.
Suppose you think that the euro will increase the value against the dollar. Your pair is the EUR / USD. As the euro is the first and you think it will go up, buy EUR / USD. If you think the euro will lose value against the US dollar, you are selling EUR / USD. If the purchase price of EUR / USD is 0.70644 and the selling price is 0.70640, the differential is 0.4 pips. If the transaction is in your favor (or unfavorable), it may result in a gain or loss for your business once you have covered the margin. If prices are quoted in cents, how can you see a significant return on your investment when operating with Forex? The answer is leverage. When trading with Forex, it effectively lends the first currency of the pair to buy or sell the second currency. With a market volume of $ 5 billion per day, liquidity is so high that liquidity providers, the big banks, basically allow leverage to work. To operate the leverage, simply reserve the margin required for your operation. For example, if you are operating with a leverage of 200: 1, you can trade $ 2,000 in the market, with an operating account margin of only $ 10. With a leverage of 50: 1, the same business size would only require a few $ 40 of room for maneuver. This gives you much more exposure while keeping your capital investment low. Leverage not only increases your profit potential. You can also increase your losses, which may exceed the amounts paid. If you are new to the Forex market, you should always trade with low leverage until you feel comfortable in the market.