What experience in Forex trading has shown
Money is earned in forex trading either by increasing the purchased currency in the price or by the currency sold in price. In practice, it doesn’t matter if you buy EUR/USD because you believe that upcoming data will favor the EUR, or whether you are selling the USD and using the EUR as a vehicle because you believe that developments will reduce support for the dollar. You can choose the EUR as a vehicle because it has a high level of liquidity, but you might as well express your negative opinion about the USD by (say) buying NZD/USD, which by definition means that you are selling the USD.
Foreign exchange trading is almost a no-stakes game in which one side wins and the other loses. If you buy the AUD/USD at 0.6500 and sell it at 0.6700, you have made 200 pips. The person who sold to you at 0.6500 has an opportunity loss equal to these 200 pips. It is possible that the seller isn’t unlucky, because perhaps he bought when the AUD was at 0.6300, and so he himself made a cash gain of 200 pips, but the fact remains that if he had held the position, he would have been 200 pips richer and not you.
We can also note that the seller may have closed a hedging position. Suppose the depositor had a debt or short position for an asset denominated in euros and had bought the euro as hedging the currency portion of the asset position. If the asset increased (which resulted in a loss on the asset), but the euro fell, the hedging business would receive a profit to offset the loss on the underlying asset. Once he has smoothed out the asset position, he no longer had a need for the currency position. In practice, hedging positions are held much longer (and in much higher amounts) than the usual foreign exchange retail trade, although the underlying asset in the hedging case might have been another short-term currency position, including an option.
If you first sell and buy back later, you technically sell the first currency in any pair – but you buy the second currency in the pair. Suppose you sell the USD/CAD at 1.0950 and buy it back later at 1.0900. They have a profit of 50 pips by selling US dollars and buying Canadian dollars. But no one will denigrate you for short selling of the US dollar, because as far as you know, you simply bought Canadian dollars because you like Canada and paid the CAD with US dollars.
With a short-selling strategy, you can make as much money as you can with long positions, although many people find it easier to project a price trend up than downwards. The stigma attached to short selling in general does not exist in forex trading. This is one of the great advantages of foreign exchange trading over other asset classes. It is still the “empty selling” of one currency, but at the same time the “buying” of another currency, and it does not have the same negative connotations as the short selling of shares or commodities. If you sell a stock empty, it’s because you think something is wrong with the company or because the market has at least overvalued it. Short sellers are reviled as “destructive” forces in the stock market, and short selling is banned from time to time in crisis situations, such as during the banking crisis in 2008. Virtually every major country has introduced short-selling bans on banks, including the US, UK, Australia, and most European countries. Stock sellers are blamed for everything from the 1929 crash to the 1987 crash, although many other factors have contributed to this.
For equities, “long go” means being hopeful and optimistic that economic and financial conditions will favor growth in general and corporate profits in particular. Companies will be well managed, profits will increase, and the price-equity ratio will also rise. There is a pronounced long-side bias in stock trading. Not so in foreign exchange trading, although we have an anti-USD bias that persisted for many decades for structural reasons. And yet it is not safe to always choose to buy currencies when selling USD.
A price increase for a long position and a price drop for a short position is the most important way traders make money in Forex trading. However, there is another way to make money by not losing it, i.e. retaining profits already made. You may be able to make steady profits on many or even most trading transactions, but you can still post a loss at the end of the period because you allow losses to become too large. For this reason, it is crucial for trading success that you always keep your stops below the targets and always follow the stops. Another rule is: Never allow a winning trade to become a losing one. If you have a win but the chart shows that the movement is coming to an end, take the profit and get off. Goals are not set in stone – only stops are set in stone.
The forex market is the most popular market for private traders. It offers you many advantages, such as low fees and very high market liquidity. Furthermore, you can participate and benefit with a small commitment. Through leverage, it is possible to maximize profit and carry out targeted but meaningful speculation. This market is also particularly suitable for beginners, as there is low volatility.
Now let’s summarize the Forex-trading experience: The Forex market is the most popular market for private traders. It offers you many advantages, such as low fees and very high market liquidity. In addition, you can participate and benefit with a small stake. The leverage makes it possible to maximize profit and speculate in a targeted but meaningful way. This market is particularly suitable for beginners as volatility is low.Go Back