Buying and selling
In this article, we will discuss the trading of major currencies in Forex.
Let’s start with EUR/USD
Here, Euro is the base currency. If you believe that, the exchange rate of USA dollar will fall, you are like to make a buy, that is buying more Euro at lower dollar rates to make you profit when the dollar value increases.
In the opposite, you make a sell. When you believe that, Euro is weak and it will fall in price versus the US dollar. You are likely to sell the euro in the forex market to stop losing money.
The same principal also goes for this currency pair. When you think, your quote currency is weak, here it is the Japanese Yen, it will fall in value, you will buy the pair to sold the Us dollars in a higher exchange rate with the Yen.
You will sell the pair when the Base currency is strong because you think, Japanese Yen could fall value in the market. So, you sell the pair to make money than losing it.
After all these major currencies pair, you probably have experienced about the pair of GBP/USD. You are thinking to make a buy order, when the US dollar value is weak, to buy Britain Pound. You make the buy to make money in exchange because you believe the USD will rise again in value.
If you are thinking this, you are correct.
What will be the scenario if the GBP is strong? You will sell the currency pair to make money. Because you believe the USD will fall in value over time.
Here, we will not explain like the other major currency pair. Use your understanding and try to find us the answer. We have given the answer for your sake.
If the Swiss currency is weak, you will buy more US dollar to make a profit by selling it at a higher exchange rate.
If the Us currency is weak, you will sell the dollar to make money before losing it.
In short, just remember these tips.
Base Currency Strong=Sell because it might fall and you might lose money.
Quote Currency Weak=Buy because it will give you a cheaper rate to buy base currency and sell at a higher rate.
Marginal means a small increment in value. Marginal trading gives us, the small brokers in forex, to make money with our little account, in forex, that is lot size. Look at this chart for example.
Figure: Marginal trading
This is as simple as buying 40 pairs of socks, 1 pair for 1 dollar the cost is 40 Dollars. When you sell it at a value of 1.5 Dollar for each pair, the value is 60 Us dollar. You make a profit of 20 dollars by marginal trading.
Forex is not just the trading of one single currency. It is the trading of different currencies. Different currencies have different interest rates. This is the rollover. The amount that you have to pay because you are having a share in double currencies. These are some of the Interest rates of some major pair’s country
Figure: Benchmark interest rate of countries
Buying and selling Currencies is an art.If you truly want to become a professional trader then you can explore more details in our Fx School or take our professional forex trading course.