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Introduction: What is forex trading?

Updated: Jul 5, 2021

Forex Trading, also known as Foreign Exchange Trading, is the conversion of one currency

into another. Forex is one of the most actively traded markets in the world, with an average

trading volume of $5 billion per day. Trading is all about BUYERS vs SELLERS.

At Lucrative Associates we mostly trade Nasdaq 100 and a few currencies. Nasdaq can be

defined as the value/average stock price of +/-100 of the largest and most traded

companies on the U.S stock exchange. Currencies are usually traded in pairs for example

USD/ZAR(Dollar value against Rand value) or EUR/USD(Euro value against the Dollar

value). The first currency is the base currency and the second currency is the quote

currency. E.g. USD/ZAR : USD would be the Base Currency and ZAR would be the Quote

currency. When looking at the financial markets on Metatrader(App used to trade) you would

see USD/ZAR: 17.50251 or EUR/USD: 1.17684 and the numbers would constantly be

changing. Those are the exchange rates. If you see USD/ZAR 17.50251 that means that 1

USD(Dollar) equals 17.50251 Rands. If you see EUR/USD: 1.17684 that means 1 EURO

equals to 1.17684 Dollars. So if you were to exchange 1 euro into dollars you would get

1.17684 Dollars for that one Euro. These exchange rates you will later see on MetaTrader.

Think of trading as investing. If you were to look at USD/ZAR and you heard that South

Africa has the least Covid-19 recoveries and more and more people are dying because of

the Virus and in America they just found a vaccine for COVID-19 and their unemployment

rate is low. Based on the information given would you rather invest your money? Into

ZAR(Rand) or USD(Dollar)? The reasonable answer would be that you would invest in the

Dollar because South Africa’s conditions are not favourable and that would result in the

Rand depreciating.

Let’s say for example you received the above information and you decided to buy 100

Dollars. The exchange rate is 17.50. That means for 100 Dollars you would pay R1750(1

Dollar = R17.50, 100 Dollars = R1750). Two days go by and because of more and more

people dying of the corona virus and confidence is lost in the South African economy, the

exchange rate increases from USD/ZAR 17.50 to USD/ZAR 19.50. If you were to trade that

100 Dollars back to Rand with the Exchange Rate at 19.50. (100$ x 19.50 = R1950). This

would mean that you would have made R200 profit from just exchanging money from one

currency to another. That is what forex trading is, but just remember the value of the dollar

could have depreciated and that means you would have lost money. Therefore, you have to

look at multiple reasons/confluences for you to enter a trade.

You will not physically have to go to the bank and exchange money there. It is all

automated, you can do it from the comfort of your phone or laptop. When trading Nasdaq,

Gold or any stock/currency you will be able to BUY and SELL the market. When you think

the currency pair or stock will appreciate/rise in value you will BUY and if you think the

currency pair or stock will depreciate/fall in value you will SELL.

Advantages of forex trading:

  • Forex trading gives you the opportunity to deal on thousands of financial marketswithout the need for large amounts of money to get started.

  • Trade anywhere in the world with Internet connection.

  • Take advantage of rising and falling markets

Please be aware that Trading is not suitable for everyone as it can result in

losses which exceed your deposits.

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