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Basic knowleage of forex

What is a transaction?

Principle of tradin

The term transaction refers to the exchange of one commodity for another. In the financial market, you buy things at a price, want to sell them at a higher price, to make a profit, or sell things at a price, and hope to buy them back at a lower price to get profit.

The term "transaction" refers only to "exchange one commodity for another." We usually think of this as the exchange of goods and money, or in other words, buying things.

When we discuss transactions in financial markets, the principles are the same. Think about someone trading shares. What they are actually doing is buying a company's shares (or a small portion). If the value of these shares rises, they will sell the shares at a higher price to make money. This is the transaction. You buy something at a price and want to sell it at a higher price to make a profit, and vice versa.

But why does the value of shares rise? The answer is simple: value changes due to supply and demand—the higher the demand for something, the more people are willing to pay for it.

Increased demand means price increases

For example, if a market owner sells an apple, the more people enter the market, he may raise the price because these customers are willing to pay to secure Apple.

We can explain this as a simple and common example of buying food. For example, you are now in the market, there are only ten apples left in the stall. This is the only place where you can buy an apple. If you are the only buyer and you only need two apples, then the market owner will most likely sell the apple to you at a reasonable price.

For example, there are fifteen people entering the market and they all want Apple. To make sure they actually get Apple before others, they are willing to pay more for Apple. Therefore, the market stall owner can raise the price because he knows that Apple's demand is higher than supply.

Once Apple reaches the price that customers think is too expensive, they will stop buying Apple. When the market owner realizes that Apple is no longer able to sell because it is too expensive, he will stop raising the price, and the price may fall back to the level where the customer starts buying Apple again.

Increase in supply means falling prices

For example, if other market stall owners enter the market, this will provide customers with more apples. The first stall owner may lower the price to attract customers to his booth.

For example, another market stall owner suddenly entered the market and there are more apples to sell. The supply of apples is now increasing dramatically. The second market stall owner may want to sell the apple at a price lower than the first stall owner to attract customers. This makes sense. Customers may want to buy apples at a lower price, which makes sense.

Seeing this, the first stall owner is likely to lower the price. Therefore, a sudden increase in supply will lower the price of Apple.

The price at which the demand matches the supply is called the “market price”, ie the price is at the level at which the market owner and the customer agree to the price and quantity of the apple sold.

Applied to financial markets

The concept of supply and demand is the same in the financial world.
If the company announces some great results and pays a considerable dividend, then more people want to buy shares in the company. This growing demand has led to an increase in the price of these shares.

What is online trading?

Long-term financial transactions are carried out electronically between banks and financial institutions. This means that transactions in financial markets are not open to anyone outside these institutions. With the development of high-speed Internet, anyone who wants to participate in a transaction can conduct online transactions. Almost anything can be traded online: stocks, currencies, commodity tangibles and many other things – at this stage, you don't have to worry about all of this. Now, just remember that if something is tradable, you can trade it. The foreign exchange market is the largest in all of these markets. Almost every day, a currency worth $4 trillion is traded, which is larger than any stock exchange in the world.

What is foreign exchange trading?

If you have been abroad, you may need to convert your money into a different currency. If so, you have already participated in Forex Trading Forex is an abbreviation of Forex Trading. It can also be called and currency exchange.

Forex trading brief

As you can imagine, forex trading is not just for currency exchange for vacation. Companies use different currencies to buy goods in other countries. In order to buy these goods, they first need to get the local currency, just like when we are on vacation. The difference is that these companies will exchange a large amount of money.

As currencies are exchanged around the world, exchange rates are also fluctuating.

Trading currency is like converting money on vacation

When currencies are exchanged, they all have a certain price: the exchange rate. The price is the same as anything, and the price of money is determined by the law of supply and demand.
For example, many people or companies want to convert their national currency into euros - the value of the euro will rise and the exchange rate of the euro against other currencies will change. You can use this principle to make money. For the sake of explanation, we use the example of vacation.

For example, if you live in Europe, go to the United States for a holiday. You will want to convert the euro to US dollars. At this point, you are 1 Euro corresponding to 1.40 USD. You redeemed 500 Euros, so you get $700.

After two weeks, you go home, but there is still $250 left. Since you are no longer using the US dollar, you convert it back to Euro.

However, you noticed that the price of the euro has changed against the US dollar – the exchange rate is now $1.30 to 1 euro, so you exchange the remaining dollars back to 190 euros. If the exchange rate is maintained at $1.40, then you will only be redeemed back to 180 Euros. So, actually, you have made money.

Successful trading means using the exchange rate to make a profit

The following uses the same example to illustrate this principle in a clearer way:

As the exchange rate of a currency pair changes, the cost of buying a currency using another currency also changes. For example, on vacation, you redeem 500 euros and convert to 700 dollars. If you change your exchange rate from $1.40 to $1.30 after your vacation, you will get 538.5 euros and a profit of 38.5 euros.

This means that you convert 500 Euros to US Dollars and get $700, but you don't spend a penny and still have $700 when you return from vacation. After the exchange rate has changed from $1.40 to $1.30, you are actually redeeming back to 538.5 euros instead of 500 euros. When the exchange rate changes, you only hold the US dollar and you get a profit of 38.5 euros. This is basically the way we trade on the money market. We buy a certain amount of currency and hold the currency until the exchange rate changes. When the exchange rate changes, we convert it back to the original currency and make money in the process.

a transaction that suits your lifestyle

Using a foreign currency exchange and getting a small profit from the holiday budget is not a viable option for foreign exchange trading. Fortunately, forex trading has a much simpler way: trading through an online exchange (called a “broker”), our WSGFX platform.

This means you can exchange currencies online and take advantage of changing exchange rates. As in the holiday example, you can buy different currencies and profit from the exchange rate between currencies – this is trading in the foreign exchange market.

Online forex trading has many advantages

You can trade forex at home or anywhere you have an internet connection.

The foreign exchange market will never be closed. It is open 24 hours a day, Monday through Friday, to suit your daily routine.

There is no huge budget to start trading. A capital of as little as $150 is enough to start trading, and you can build your personal account over time.

Forex trading won't make you rich overnight, but it will provide you with a stream of earnings outside of your normal job. It can even be a business, depending on how long you are willing to invest.

Of course, you need to put some effort into it, which is the purpose of tradimo – to help you understand how to trade in the way that best suits your individual lifestyle and to help you get the most out of the Forex market.

Risk warning:All foreign exchange, precious metals are accompanied with great risk, therefore is not suitable for all investors. Please be sure to fully understand the risks at your own can bear within the scope of the investment. More risk for details, please refer to the risk of WSG statement and deposit policy.