Words like economic downturn or financial crisis often made headlines in recent years, especially after the Covid-19 pandemic, when many people’s incomes were lowered. During tough economic times, common people tend to face financial stress and job uncertainty, but making a living is still a necessity for them. Against this backdrop, if people can win a large jackpot at a relatively low cost, just like a lottery, that would undoubtedly provide temporary relief from financial difficulties and offer a glimmer of hope for a bright future.

Fortunately, the forex trading is just like this lottery, giving you a sense of hope and a chance to escape from financial worries. Of course, forex trading offers no guarantee that you can win high returns 100%. However, compared with lotteries which depend on pure luck, you may manage to win high profits by learning professional knowledge. Have an interest in joining forex trading? Let’s dive in.

What is Forex Trading?

Forex trading, also known as foreign exchange trading, refers to a game where you trade different countries’ currencies. In forex trading, you can purchase one currency and sell another one at the same time. For example, you might buy US dollars and sell euros, if you believe that the dollars will be more valuable compared to the euros in the future.

The goal of forex trading is to make a profit by taking advantage of changes in currency exchange rates. Exchange rates are the prices at which one currency can be exchanged for another. These rates can go up or down, just like the prices of your favorite Pokémon cards.

When participating in forex trading, you can use leverage, which is like borrowing money from a broker to make bigger trades. This may sound a bit complex for a beginner. Just imagine you are playing a video game, and you have a special power-up making your character stronger. Given the leverage is a key concept in forex trading, we will go through more details in the article “Understanding Margin and Leverage: Why Forex Trading May Boost Your Profits“. For now, you just need to keep this mind: Leverage can increase your potential profits, but it also increases the risk, so it’s important to use it wisely and understand the potential consequences.

To start your journey in forex trading, you’ll need to open an account with a forex broker, which is like having a platform to trade currencies. In such a platform, you will have access to the necessary tools, indicators and charts to help you make informed trading decisions. With Ultima Markets, you can not only trade currencies with our high leverage ratio, but also precious metals, commodities, indices, shares, and cryptos. In our multi-asset platform, you may win your own lottery by fully utilizing the price movements in various popular assets. Click here to register your account with Ultima Markets.

Why You Should not Miss the Opportunity of Forex Trading?

You may hear the news that someone got convicted for controlling one company’s share price. This kind of news is commonplace in the capital markets, as controlling one company’s share price requires relatively less money and power. But no single individual or entity has the power to fully control the forex market. The forex market is the largest and most liquid financial market in the world, with numerous participants, including central banks, commercial banks, hedge funds, corporations, and retail traders.

The forex market operates in a decentralized manner, meaning there is no central authority or governing body that dictates prices or controls the market as a whole. Instead, currency prices in the forex market are determined by the forces of supply and demand. In other words, if you master the professional trading knowledge, you may succeed in earning high returns without the need to worry that the price of assets you invest into may be distorted by some big market makers.

This gives common people a chance to win their lotteries as mentioned in the beginning of the article. The forex exchange rate resembles the password to decode the economic fluctuations, government policies, and investment decisions. In the forex market, the price of currencies are determined by the most professional traders in the world, resulting in a fair market.

Anyway, it’s important to remember that forex trading also involves risks, just like any game or investment. Prices can be influenced by many factors, such as economic news, political events, or even natural disasters. The forex trading is not a guaranteed approach to making money, but with knowledge, practice, and a responsible strategy, it can be an enticing and potentially profitable activity.

Summary

• Forex trading refers to a game where you trade different countries’ currencies.
• The goal of forex trading is to make a profit by taking advantage of changes in currency exchange rates.
• There is no central authority or governing body that dictates prices or controls the market as a whole.

You will never understand why forex trading may help you win the financial lotteries, if you have no idea about margin and leverage, the two key elements in forex trading.

What Are Leverage and Margin?

The terms, leverage and margin, are often used interchangeably in the forex trading, so let’s try to explain these two terms altogether.

Imagine you are playing a video game, and you have a special power-up that makes your character stronger. In forex trading, the leverage is exactly that power-up allowing you to control a bigger amount of capital with only a small amount of your own money. In simple terms, leverage is a multiple to magnify your money deposited into your trading account.

If leverage is a multiple of your deposit, then margin is the amount of money required to open a trading position. It is a small portion of the total value of the trade that you must have in your trading account. Margin serves as a form of collateral or security for the broker against potential losses.

Margin and leverage are important because it enables you to access the forex market with a smaller capital investment. In other words, you can engage in trade with limited funds and potentially profit from currency price movements.

How Leverage and Margin Work in Forex Trading?

Let’s say you want to trade $10,000 worth of a currency pair, but you only have $100 in your trading account. With leverage, your broker can lend you the remaining $9,900. In this case, the initial deposit of $100 is your margin, and your leverage ratio is 1:100 ($100/$10,000). Leverage allows you to amplify your potential profits. If the price of the currency pair goes in your favor, you can make a higher percentage return on your initial investment.

However, it’s key to remember that margin and leverage not only magnify your profit, but also amplify your losses if the trade fails to go as planned. If the price of the currency pair moves against you, you can lose more money than you initially invested. This is why it’s crucial to use leverage prudentially, and understand the potential risks involved.

Let’s continue with that video game analogy. If you use your special power-up correctly, then your character will be stronger, and you can defeat enemies easily and win more points. But if you use power-up in the wrong way, you may lose more points than if you don’t have the power-up. Similarly, if your forex trades don’t go well, you can lose more money with leverage than if you were trading with just your own funds.

Summary

• Leverage is a multiple to magnify the money deposited into your trading account.
• Margin is the amount of money required to open a trading position.
• You only have $100 in your trading account, but you want to trade $10,000 worth of a currency pair. With leverage, your broker can lend you the remaining $9,900. In this case, the initial deposit of $100 is your margin, and the leverage ratio is 1:100 ($100/$10,000).

3 Basic Concepts in Forex Trading Key to Beginners

Forex trading can be complex for beginner investors if they don’t understand some basic concepts or elements. Except for margin and leverage mentioned in our previous article, “Understanding Margin and Leverage: Why Forex Trading May Boost Your Profits”, we are going to walk through another 3 basic elements key to forex trading in this article.

Pips & Spread

Pips are a way to measure the price movement of currency pairs in the forex market, while spread refers to the difference between the buying price and selling price of a currency pair.

Think of pips as the small units that represent changes in the value of a currency pair. Pips are usually displayed as the last decimal place in the exchange rate. For example, if the exchange rate of the EUR/USD currency pair moves from 1.2000 to 1.2010, it means it has moved 10 pips.

As for the spread, it’s the cost you pay to enter a trade. When you see a currency pair quote, it will show two prices: the higher ask or offer price and the lower bid price. The difference between these two prices is the spread.

Imagine you want to trade the USD/JPY currency pair, and the current quote is 110.50/110.55. In this case:

• The bid price is 110.50, which means if you want to sell the currency pair, you will receive 110.50 Japanese yen for every US dollar.
• The ask price is 110.55, which means if you want to buy the currency pair, you will have to pay 110.55 Japanese yen for every US dollar.

In this example, the spread is 5 pips, as the difference between the bid price (110.50) and the ask or offer price (110.55) is 5 pips.

Take Profit

Take profit and stop loss are two important tools used in forex trading to manage risk and protect trading positions. Let’s explain take profit first.

Take profit is a predetermined level at which you decide to close a trade and secure your profits. It’s like setting a target for your amount of profit you want to achieve from a trade. When the market reaches your specified take profit level, your trade is automatically closed to realize the profit.

Imagine you bought the EUR/USD currency pair at 1.2010, and you set your take profit at 1.2110. This means you aim to capture a profit of 100 pips. If the market moves up and reaches 1.2110, your trade will be closed automatically, limiting your profit to 100 pips.

Stop Loss

Stop loss is a predetermined level at which you decide to exit a trade to limit your potential losses. It’s like a bottom-line that protects your trades from significant drawdowns. When the market moves against your position and reaches your specified stop loss level, your trade is automatically closed to prevent further losses.

Continuing from the previous example, let’s say you also set a stop loss at 1.2050. This means you are willing to accept a maximum loss of 50 pips. If the market moves down and reaches 1.2050, your trade will be closed automatically, limiting your loss to 50 pips.

By using take profit and stop loss orders, you can manage your risks effectively, protect your investment, and maintain a consistent and disciplined approach to forex trading.

Summary

• Pips are a way to measure the price movement of currency pairs in the forex market, while spread refers to the difference between the buying price and selling price of a currency pair.
• Take profit is a predetermined level at which you decide to close a trade and secure your profits, resembling a target for your amount of profit you want to achieve from a trade.
• Stop loss is a predetermined level at which you decide to exit a trade to limit your potential losses, resembling a bottom-line that protects your trades from significant drawdowns.