Alice Blue is the leading zero brokerage stock broker in India. Alice Blue was founded with the intention to serve people trading in the Indian Stock,forex,equity and commodity markets.
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Home    Knowledge Base    Forex Trading 

How does Forex trading work ?

Forex trading is the buying and selling of two currencies. The two currencies that are traded are what make up a ?currency pair? and re always traded in pairs. Currencies in the forex market are represented by three letters, first two letters denoting the country and the last letter identifying the currency.The currency pair reads in opposite direction of mathematical ratios, example: EUR/USD = 1.23700 .Wherein, the currency to the left of the slash is the base currency and the right of the slash is the quote currency meaning 1 unit of Euro is equal to 1.23700 of U.S. Dollars.A trader in the money market therefore has to pay 1.23700 Dollars to buy 1 Euro. Similarly, if he is selling, the foreign currency exchange will specify the units of the quote currency the trader will receive for selling a unit of base currency.Taking the above example into consideration the trader would receive 1.23700 Dollars if he sells 1 Euro.

The Right Time To Buy And Sell

The right time to open a buy position is when the trader speculates the value of a specific base currency to increase. To open a sell position, the trader would look for a value of a specific base currency to decrease.

Earning Profits

Quote currency is the profit or loss earned or incurred in a trade, as the currency pair price is given in it. For example, if a trader buys euro-dollar at 1.3000, and sells it at 1.3010, his profit is $0.0010 or 10 pips for each euro. A pip is the smallest measure of price move on a forex exchange.Spread: Each trade has two prices: bid price and ask price. The bid price is the rate at which the broker buys and trader gets on selling. The ask price is the proposed price at which the broker sells and the trader pays to buy. The difference between bid and ask price is the spread or the broker's profit.In a Euro-Dollar trade at 1.4000/1.4003, the spread accounts to 3 pips. On trading 100,000 euro-dollar, the broker earns a total of $30, irrespective of the trader?s profit or loss. If the currency pair rises to 10 pips (that is, from 1.4000/1.4003 to 1.4010/1.4013), the trader will earn only 7 pips because it was bought at 1.4003 and sold at 1.4010.Hence, while trading, a lower spread is better for traders, as it gives higher profit.

New Trader

For a newbie, there are many demo and micro accounts to practice on and several brokerage and zero brokerage forex trading offices that office expert services.

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