How do you make money trading forex?

In the forex market, you buy and sell currencies just like in the stock market.

Currencies are usually paired. e.g. AUD/USD. So if you buy this pair, you are expecting the Australian Dollar to go up and the American Dollar to go down simultaneously.

For example, say you buy 10,000 AUD at the AUD/USD with an exchange rate of 0.70.

In other words, every AUD is worth 0.70 USD.

3 Weeks later the price jumps to 0.79.

Therefore,

*AUD 10,000 x 0.70 = USD $7000

**AUD 10,000 x 0.79 = USD $7900

Thus earning you a net profit of USD $900.

Now, that’s how you make money trading forex.

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Now let’s learn to read a forex quote

As mentioned earlier, currencies are always quoted in pairs like AUD/USD, EUR/JPY, and like the one shown in the picture above, EUR/USD.

Here, EUR or EURO is the base currency and USD is the quote currency. In layman’s terms, for 1 Euro you will get 1.4745 USD.

Thus, the base currency is the basis for the buy or the sell. Pretty simple huh!

For further explanation, make sure you refer to the video in this post.


Time for some Forex Lingo

  • Long: If you decide to buy a currency pair, (you are buying the base currency and selling the quote currency), in traders talk, it is referred to as, “going long” or taking a “long position“. Therefore, BUY = LONG.
  • Short: If you decide to sell a currency pair,(you are selling the base currency and buying the quote currency), in traders talk, it is referred to as, “going short” or taking a “short position“. Therefore, SELL = SHORT.
  • Bid: The bid price is the price a forex trader is willing to sell a currency pair for. In general, the bid price is lower than the Ask price. In other words, the bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency.
  • Ask: The ask price is the price a trader will buy a currency pair at. In other words, the ask price is the price at which your broker will sell the base currency in exchange for the quote currency.
  • Spread: The difference between the bid and the ask price is called the SPREAD.
An illustration that covers everything we’ve discussed in this article

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