Forex Trading – Are You Winning or Losing? The foreign exchange market is where different kinds of currencies are traded. In every transaction, two currencies are involved. For example, you can sell your Canadian dollars for Euros; or you can pay for Japanese Yen with US dollars. Foreign exchange rates or exchange rates may change unexpectedly. You need to monitor these exchange rates to determine whether the price of a currency is rising or falling.
Changes in the forex market usually happen quickly, so it is important for traders to keep track of the market. Political and economic events can affect changes in the foreign exchange market. If you want to determine whether you are making a profit or a loss in Forex trading, this article can help you with the calculations.
Foreign exchange investments are greatly affected by exchange rates, and in order to understand the relationship between the two, you should also be familiar with foreign exchange quotes. Like currency pairs, Forex quotes can also come in pairs. Here is a good example:
Suppose the currency pair is USD (United States Dollar) and CAD (Canadian Dollar). The FX quote for this currency pair is USD/CAD=170.50; this is interpreted as equal to 170.50 Canadian dollars per US dollar. The currency found on the left is called the base currency and it is always equal to 1. The currency found on the right is called the inverse currency. The strong currency is always the base currency, in this case the US dollar. The central currency of Forex quotes is the US dollar, so you can find it in most Forex quotes.
How do you know if you are profitable? You can use another example. This time using EUR/USD. Suppose the foreign exchange rate is 1.0857; in this example, the US dollar is the weaker currency. If you purchased EUR 1,000, you would pay $1,085.70. A year later, the foreign exchange rate is 1.2083, which means that the value of the euro has risen. If you decide to sell 1,000 EUR now, you’ll get $1,208.30; now, in this trade, you’ve got $122.60. What if the foreign exchange rate after one year is 1.0576? This means that the euro depreciates. If you still decide to sell 1,000 EUR, you will only receive $1,057.60, which means you have lost $28.10; do you understand?
Forex trading involves a lot of risk, just like mutual funds and stocks. Volatility in the foreign exchange market is responsible for such risks. Low-level risk, such as government bonds, can pay off in the long run, but returns are very low. If you want higher returns, you need to invest in Forex trading, but you need to face higher levels of risk.
You must set financial goals for the short and long term. By doing so, it will become easier to balance the risks and security involved. You will be able to trade easily and comfortably. With all the available forex trading tools, you can trade wisely and profitably. After reading this article, you can already figure out whether you have made a profit.