Learn Currency Trading: Experience, Tax & Example for Forex Trading / FOREX
Learn currency trading – First step first! Learn! ETFs are speculative, stocks are more speculative, currency trading means staying with it all the time. Financial news, price development. For beginners, this means building understanding step by step. What is it about? The foreign exchange market (currency market), or Forex (FX) for short, is a decentralized marketplace where you can buy different currencies (dollars, euros, etc.). Trading is not done on a central exchange, but in the interbank market (OTC) and via apps. Let’s start with a simple example, what is currency trading? How can you profit from currency trading? Buy, sell, hold – central terms of the stock exchange, you also have their validity in currency trading. However, with much faster frequency. Here you learn what it’s all about.
Foreign Exchange Trading / Currency Trading Explained: Example USA Trip
For beginners and novices, getting started in forex trading / currency trading is relatively easy. You can get in without much capital, even via app.
Many are familiar with the stock market, stocks and ETFs. But, how often have you heard about currency trading? Very few have experience in this particular area. How does trading with different currencies, from Euro (EU) to Dollar (USA) work or how do you earn money with it?
If you have ever traveled to the USA, then you have participated in currency trading without even knowing about it!
Every currency exchange is a foreign exchange trade. You buy at a certain short and sell at a certain short. The difference is then profit or loss.
That’s it. That’s how “simple” currency trading works.
Demand and supply
So that we start directly simple, now you learn how you can make 10,909 euros from 10,000 euros after one month on your next trip!
Course profit (30 days): 909 euros
How does it work?
Let’s start a little thought experiment.
Example: Currency Exchange on US Business Trip
You’re going on a trip to the USA. So you have to exchange your Euros for Dollars. By doing so, you participate in the global foreign exchange market.
You take 1) the money you need on the trip and 2) an extra 10,000 euros.
You exchange the 10,000 euros at the current exchange rate.
Euro/USD exchange rate (January 8): 1.20
What does exchange rate mean? The exchange rate means how much you have to pay from one currency to another. An exchange rate (EUR/USD) of 1.20 means that you will get 1.20 euros for 1 euro in exchange.
1.00 Euro = 1.20 Dollar
Accordingly, you exchange at this rate and get $12,000. So for 10,000 euros you get 12,000 dollars (US).
10,000 Euro = $12,000
A month later, on February 8, you travel back to Germany. The EUR/USD exchange rate is now 1.10. That means the euro has weakened. Accordingly, you now get more euros back.
For your 12,000 US dollars you now, one month later, get back a whole 10,909 euros in exchange.
+ 909 euros profit
You just incidentally made a profit of 909 euros. That would pay for your next round-trip flight to the USA. This is how currency trading works, explained very simply.
Example Calculation: Euro / Dollar
In summary:
- Time period: 30 days
- Exchange rate fluctuation (EUR/USD): -0.10
- You exchange 10,000 euros for 12,000 dollars
- Exchange rate 1.20
- Reverse exchange 12,000 U.S. dollars for 10,909 euros
- Exchange rate 1.10
- Conclusion: 909 euros profit
Here are the exchanges:
- January: 10,000 euros = $12,000
- February: 10,909 euros = 12,000 dollars
Perfect, now you have understood currency trading and the exchange rate in its basics.
Exchange Rate: How is the Value Calculated?
Here again briefly summarizing what you learned above:
EUR / USD
- Value: Initial currency (EUR)
- Value: New currency (USD)
For example, the EUR/USD rate tells you how many dollars (USD) are needed to buy one euro (EUR).
- EUR/USD 1.20
- Means: For 1 euro you get 1.20 dollars
This is the current EUR / USD exchange rate:
Where do these exchange rate fluctuations come from?
Exchange Rate Fluctuation: Explained Simply
Financial news, economic news, politics, all of these and more affect the exchange rate. Since it is not a company, as in the case of a share, but a currency, that is, an economic area, there are of course accordingly x-fold many messages. Different economic areas, news, time zones, psychology of the brokers, all influence fluctuations, with which such profits can be achieved.
This leads to exchange rate fluctuation.
Private traders make up only a very small part of the global currency trading in terms of volume. Trading companies trigger the vast majority of transfers. They do so in order to:
- Buy products abroad
- Exchange proceeds back into national currency
For example, to do this, companies exchange euros for dollars, dollars for euros, euros for yuan, etc.
If many companies exchange at once, the demand increases.
Business 101: If the demand increases, the supply decreases and accordingly the price increases, whether for services, products or currencies.
Who knows dynamics before large public attention, can find substantial capital profits, as above in the calculation example to the foreign exchange trade in. Therefore, as in currency trading, you must constantly follow news. For example, by setting up an alert on Google. But let’s stick to the basics for beginners. What are the advantages of currency trading?
Advantages Foreign Exchange Trading
It is important: always consider the disadvantages and risks (loss of assets).
So, what are the advantages of forex trading? Traders are attracted to the foreign exchange market for a variety of reasons, including.
- Size of the forex market
- Variety of currencies to trade
- Different levels and volumes
- Low transaction costs
- 24-hour trading during the week
Important Currencies & Cryptocurrencies
Tip: You can find all the latest rates at the end of the article.
Currencies:
- US Dollar (USD)
- Euro (EUR)
- Japanese Yen (JPY)
- Pound Sterling (GBP)
- Australian Dollar (AUD)
- Canadian Dollar (CAD)
- Swiss Franc (CHF)
- Chinese Renminbi (CNH)
- Hong Kong Dollar (HKD)
- New Zealand Dollar (NZD)
Cryptocurrencies:
- Bitcoin
- Ethereum
- Litecoin
- Ripple
- Bitcoin Cash
- Dash
How to Trade Currency
How do I get started with currency trading? How do I participate in currency trading? Today, trading foreign exchange is relatively simple. There are many brokers on the Internet and in app stores. Here you can start and trade forex in seconds as well, 24 hours a day, 5 days a week.
By the way, you can trade cryptocurrencies 7 days a week
Forex Trade
Internationally, you will almost always hear the term “forex”.
Forex = currency trading = foreign exchange trading
Forex stands for “foreign exchange” and refers to the buying or selling of one currency, in exchange for another. Forex is the most heavily traded market in the world because people, companies and entire countries participate in it.
For beginners and novices, getting started in Forex trading is relatively easy, as mentioned in the introduction. You can get started without much capital. Through online brokers or apps.
- Traders: individuals, companies and countries
- Enter without high equity
- Quick to trade via app
Pairwise Trading: Definition
In the foreign exchange market, currencies are always traded in pairs. When you exchange euros for US dollars, you are dealing with two currencies, so the exchange always indicates the value of one currency in relation to the other.
For example, the EUR/USD rate tells you how many US dollars (USD) are needed to buy one euro (EUR).
Symbols: Definition
The foreign exchange market uses symbols to denote certain currency pairs. The euro is symbolized by EUR, and the US dollar is USD, so the euro/US dollar pair is displayed as EUR/USD.
Exchange rate today: Example
Once again, here is the current EUR / USD exchange rate:
This is how to read the chart, example from 07/2020:
Currency pairs bid price / change / change (%).
- EUR / USD at 1.173 / 0.00730 / 0.6293%
- USD / JPY at 105.447 / -0.67520 / -0.6363%
- EUR / GBP at 0.912 / 0.00130 / 0.1467%
- USD / CHF at 0.920 / -0.00090 / -0.0983%
- EUR / CHF at 1.079 / 0.00570 / 0.5323%
- GBP / USD at 1.286 / 0.00620 / 0.4869%
- EUR / JPY at 123.669 / -0.00210 / -0.0017%
Each forex pair is assigned a market price. As described above, the price is the exchange rate, how much of the second currency is needed to buy one unit of the first currency.
If the price of the EUR / USD currency pair is 1.173, it means that it costs 1.173 US dollars to buy one euro.
Formula: Currency exchange
To find out how many euros it costs to buy one US dollar, simply reverse the currency pair. To do this, you divide 1 by the current rate, which you already know.
1 / exchange rate
In the example, this would be 1 / 1.173 so you get a USD / EUR rate of 0.852
- USD / EUR at 0.852
Pip: Point in Percent
In foreign exchange (forex) trading, the pip value can be a confusing topic. A pip is a unit of measurement for currency movements and is the fourth decimal point for most currency pairs.
For example, if the EUR/USD rate moves from 1.1730 to 1.1731, that is a one-pip move. Most brokers offer a “fractional pip price”. Here you would still see a fifth decimal place, such as at 1.17305.
How much profit or loss you make from a pip movement depends on both the currency pair you are trading and the currency you have funded your trading account with.
Currency rate up to date: real-time
Here you can find the most important currencies in a 12-month overview:
EUR / USD
USD/EUR
EUR / CHF
Trading: stocks, currencies, and apps
If you want to read more tips, in the blog you can find many more articles, like:
- Cryptocurrency & Block Chain – Simply Explained
- Buy Stocks: Direct Bank / House Bank
- Stocks, ETF, Forex, Cryptocurrency, Social: My Experience and Mistakes!
Cryptocurrency: Bitcoin, Ethereum, Ripple & Co.
Digital currencies are getting more and more attention from investors, whether from companies or individuals. Individual countries are even already thinking about introducing their own digital currencies. Here again the “most important” courses at the moment.
Cryptocurrencies:
- Bitcoin
- Ethereum
- Litecoin
- Ripple
- Bitcoin Cash
- Dash
How to Define Cryptocurrencies?
Now I don’t want to mention technical terms like “block chain”, etc. Simply explained: cryptocurrencies are like commodities, for example gold as a precious metal. There is a finite amount of XY on earth.
Did you know? There are only 21 million Bitcoins
Theoretically, gold is worth nothing, but because people assign value to gold, it has value. The more people use this investment opportunity, the higher the price goes. Bitcoin almost the same way. There is a certain number and the more invest, the higher the price goes. If people sell their shares, so they do not trust the further price growth, the price falls again.
Fast and speculative.
- Higher, faster profits / losses
- Much psychology, little news analysis
- Trading is possible 7-days a week
Of course, I can’t fully explain cryptocurrency to you here, but I want to give a little insight. I invested the first time in 2017 in Bitcoin, later also Ethereum, Chainlink and Litecoin. What are my experiences?
Higher Frequency Means More Profit / Loss
So of course you make “only” 1x profit. Still though, if this profit is taken “more often”, in sum you attain much more capital.
Method / Strategy in Trading
You buy at the lowest possible price and sell at the next price high
Sounds simple, but many buy a financial product at the beginning and just keep it. This saves you a lot of nerves, short-term trading increases the profit for it.
For example, when I traded my first bitcoins, I sold and bought in between. So I can take small profits and then reinvest when the price is cheaper again in the hope that it will become cheaper.
My highlight was then the price high of 24,000 shortly before December 24. My last, active trading day. Since then, I’ve been focusing more on social trading.
Price Plunge, Price Gain, High at $23,900
What a thriller! After trading for a long time, the day now came when I wanted to sell. I ran through the city for 2 hours with my app – of course, the sale was already preset, it was more the emotional aspect of being there!
It also went high once again, as you can see in the chart here. The bitcoin rate is shown here in euros. The method is the following: You buy at the price low and sell at the next price high.
A very important basis in trading financial products. The shorter and more extreme the periods are, the higher the profit, but also the risk of the trade.
- 2 additional purchases in 2 days
- 2 immediate sales
Graph in Euro: