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Forex 101: The absolute basics

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Forex 101: The absolute basics

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To be a good trader, you need to trade with your eyes open, recognize real trends and turns, and not waste time or energy on regrets and wishful thinking.” – Alexander Elder

Forex trading which is short for “foreign exchange” trading has gained some popularity over the past couple of years. This is primarily due to the fact that forex trading potentially offers you an extra income and a way to accumulate wealth. This post is meant to serve as a starting point to forex trading. To be a forex trader you will have to read further than this article and apply what you learn by trading.

What is forex? 

The forex market is the largest financial market in the world. Trading forex is the buying and selling of currencies in order to make a profit. The dictionary meaning of a currency is “a system of money in general use in a particular country”. So for example, the South African Rand (ZAR) is South Africa’s currency and the United States Dollar (USD) is America’s currency.

The Foreign exchange rate is the price of one currency compared to another. So when the USDZAR (That is, the exchange rate between the US Dollar and the South African Rand) is trading at the rate 13.1, this means for every 1 USD you own, you can get R13.10.
Note: If you buy the USDZAR you are buying US Dollars and selling the South African Rand. If you selling the USDZAR you are selling US Dollars and buying South African Rands.

The main principle.

The principle in trading is to “buy low and sell high” and “sell high and buy low”. In other words, buy when you expect the exchange rate to rise and sell when you expect the exchange rate to fall. For this you would need to know how to forecast currency movements.

 

 

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Tinaye is a self taught forex trader. He holds an honours degree in mathematics and is currently pursuing a Financial Risk Management (FRM) qualification.

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