As much as we hate to break it to you, but in order to have any level of success as a Forex trader there is going to be some math involved. We know, that’s kind of disappointing however, we are going to give you a brief overview of some of the fundamentals that can help guide you through those scary math moments. So, here are a few examples to mull over:
The base currency in this example is the Great Britain (British) Pound. It has been paired with the United States Dollar. If you feel that the economy in Britain will do better than in the US during the time of your trade you would initiate a buy GBP/USD order. In other words, you bought the Pounds thinking that they would increase in value over the USD.
On the other hand, if you sense that the US economy will stay solid and Britain’s will get a bit softer during the duration of your trade, then you would enter into a sell GBP/USD order. This means that you have sold pounds thinking that they would lose value against the USD.
In this example the base currency is the US Dollar. It has been paired with the Japanese Yen. With the idea that the yen is going to be devalued slightly by the Japanese government in an effort to bolster the export market you would launch a buy USD/JPY order. What you have done is purchased USD hoping their value would increase against the JPY.
Now, suppose your thoughts are that Japanese investors are going to yank their finances out from US markets and then convert all the US money back into yen. You feel that this move would cause harm to the USD and therefore you would place a sell USD/JPY order. That means you have sold USD with the feeling that they would lose value against the yen.
Wasn’t There Going To Be Some Math?
Well, as you can see just from the couple of examples provided here, there’s not a whole lot of math used as opposed to analysis of various factors. This is where your homework comes into play. By studying all kinds of indicators – including those that come from news and information sources outside of the Forex arena – you can build a knowledge base. With that knowledge base and an understanding of various charting tools and formation data, you can very well make some intelligent trades in the currency pairing territory of Forex trading. To be sure that you have the ability to understand the data, why not start with a demo account? Many brokers provide them free of charge so you can test the system and learn how it operates with no risk to you. The better prepared you are through educating yourself with a demo account, the better a trader you can become. But it doesn’t happen within a week or two. Forex trading is a long-term process that can truly be a rewarding experience.