Try to Understand Forex Trading

Forex Trading is one business i am also into. You hear people speak as if it is a fraudulent enterprise simply because they do not know or understand what it is all about.

I am writing here to try and de-mystify forex trading or 'forex' as most people call it.

Firstly Forex is simply FOREIGN EXCHANGE. In this sense what is foreign exchange? Foreign exchange in this sense is foreign currency or some times may refer to foreign stock (as in NASDAQ, DOW JONES,GOLD, Platimuim)..locally Nestle, Nigerian Breweries, First bank, Intercontinental Bank, IA Insurance, etc.

So simply put, forex trading is trading currencies or stocks. Example as i write 1 dollar is worth 160 Naira in the currency market. This is quoted as USD/NAIRA=160.00 meaning 1 Dollar = N160. If you believe dollar is appreciating in value with regards to Naira this means that the value of 1dollar maybe increasing from N160 to say N180.
When the price was N160 you buy some dollars and keep them until when the price is now N180, then if you sell the Dollars at this current price of N180, you obviously make profit. Example if you spent N200,000 (200 hundred thousand naira) to buy dollars at N160, you would have bought 200,000/160 = $1250. When the price of 1 dollar becomes N180, you sell the $1250 and that would be $1250 x N180 = N225,000 so you make a profit of N200,000 - N225,000 = N25,000.(Twenty-five thousand naira) trading currencies like that. If however the price falls from that N160 to say N157 notice that you would make N157 x $1250 = N196,250 which is a loss of N200,000-N196,250 = N3,750.
This is how the forex market is traded but with currencies of different countries. This is also how stocks are traded in the Nigerian Stock Exchange floor through stock brokers.
In the currency market you also have foreigh currency brokers who automate the process of buying and selling through websites and data bases of prices. People study the price changes in charts and through news (economic/political news)and then decide to buy one currency or sell the other. The currencies are normally paired like EUR/USD ie Euro/dollar, GBP/JPY ie Pounds/Yen, etc.

These brokers hold your money in their account (leveraged, margin account) while you perform the trading through their platform (buying or selling for profit). Which means you must register a trading account and deposit your money with them through bank wire or credit card or some online currency eg Alertpay or Liberty Reserve.
The technicality of trading these currencies is what you have to learn for you to trade successfully. Just like you sent your money to the broker, you could request and withdraw money from your account with the broker after you have traded and made profits. If you traded and made losses such that all monies in your account were gone, you don't get any to withdraw and you lost.
So Forex trading is not a mirage, it is real automated buying and selling of currencies and stocks.
The only problem is that internet has made it to be done online and so you can get brokers that are fake and unregistered and they take your money and close the web site after some time and would not pay people who invested and traded through their website. Note that prices of these currencies and stocks are periodically fed into the database so that you could see as prices of one currency with respect to another change in a chart. This and some technical studies and economic news enable you make a decision whether to trade a currency pair or not. Currency pairs are normally called trading instruments eg USD/NAIRA, EUR/USD, NZD/USD, EUR/JPY, USD/CAD, etc.and these are usually quoted with their prices eg EUR/USD = 1.4076 ie 1 Euro costs 1.4076 dollars, NZD/USD = 0.6529 ie 1 Newzealand Dollar costs 0.6529 Dollar. etc. The Broker trading platform presents these pairs/prices with BUY or SELL button to click and then a window where you put the units you are buying or selling appears and as you click OK, Puuuummmm..you are in a trade. Some use BID or ASK too. When you are up in profit, you click the transaction ID on your account and option to close appears and you can click and close with ease and your profit/loss is instantly added to you money...simple? See it's just a case of buying/selling of currencies or stocks automatically.

You can comment or ask questions here.

I tried to use plain language here instead of forex jagon.

.....To be continued