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If you are new to trading, then before you start trading, you need to study the concept of Forex - what it means, how currencies are priced and how to open your first trades.

In English, the name "Forex" is derived from two words - "Foreign", which means "Foreign" in Russian, and "Exchange", which means "Exchange". In English, the name "Forex" is usually abbreviated to FX.

The daily financial turnover of the Forex market exceeds the volume of 4 trillion dollars. This is the largest market, which includes both large corporations and companies, as well as private investors and traders. The purpose of trading in the foreign exchange market is very simple. This is a speculative form of trading in which a trader tries to capitalize on the difference in the value of currencies. By buying an asset at a low price and selling it at a high price, the trader makes a profit.

On Forex, currencies from different countries are grouped in pairs. For example, EUR / USD (Euro / US Dollar) or GBP / USD (British Pound / US Dollar). Such a pair always shows the ratio of the price of one currency to the price of the second. For example, if the value of one pound were two US dollars, then the value of the GBP / USD pair would be 2.0000.

Forex trading spread
Counting your profits

Forex trading spread

The concept of spread also came to us from the English language and is derived from the word "Spread", which in the context of its application in financial markets means "distance". Hence, the spread shows the difference between the buying and selling costs of a currency.

Applied to Forex, the spread will show the difference between the price that sellers have offered for a particular asset and the price that buyers are willing to pay for it. For example, you would like to open a trade on the EUR / USD currency pair. You will be shown two costs - buy (high price) and sell (low price). If the buy price is 1.40 and the sell price is 1.42, then the difference of 2 pips will be the spread.

Next, the trader needs to make a forecast where the asset value will move in the future - up or down. This will determine which deal is more profitable to open - buy or sell. Let's say a trader expects the price of the euro to rise against the dollar. Therefore, it will be more profitable for him to open a buy deal at 1.40 in order to sell this asset at a higher price, for example, at 1.46.

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Counting your profits

Let's take another example. Let's assume that the spread for the EUR / GBP pair is 0.5123 - 0.5124. After analyzing the market, you expect the price of the euro to rise against the British pound and therefore buy 10,000 euros at the current selling price of 0.5124. Then the market went in your direction and the spread increased to 0.6347 - 0.6348.

After a while, you decide to sell those euros by wrapping them back in pounds at the current price of 0.6347. That is, the previously purchased euros will be sold for 6347 pounds sterling. To calculate the profit on this transaction, it will be necessary to subtract the original purchase cost of the euro (5124) from the last cost (6347). The result is £ 1,223. This is your profit for this trade.

Please note that the amount of profit is always calculated in the second currency in the pair (after the slash). In our example, this is a pound sterling.