The quick rise in popularity in Forex trading has caught many by surprise but it is based upon the fact that people find it easier than investing in stock markets. This may be in part due to the fact that in Forex trading, investors merely have to keep track of the relative values of a few pairs of currencies which is relatively much less tedious than analyzing the prices of a number of stocks. However, despite the popularity of Forex trading and the fact that the currency markets have overtaken the stock markets of the world in terms of total turnover, there are still millions of people who are not aware of the basic principle of Forex trading and how to profit from it.
The basic foundation of Forex trading lies in the relative movement of pairs of currencies and the selection of the right moment to place a bet to derive the maximum benefit out of this movement. It is a fact that every currency of the world is linked with the other top 4-5 currencies of the world and its relative value in terms of these currencies (as each currency never exists alone but as a currency pair) keeps fluctuating all the time. When you speculate that the price of a currency will go up or down, you are actually not buying a product at a specified price. You are investing in the economy of a country with the belief that it will perform better or slide further depending upon the underlying confidence that investors have in that economy/country. You place your confidence in the value of one currency in terms of another and buy or sell in anticipation of a movement in its price. This price is not static and moves several times in a single day. You have to remain alert to book your profit.
The similarity of Forex trading with the trading on the stock market lies in the fact that if you adopt a long trading strategy, your aim as an investor is to buy a currency when its price is low when compared to other currencies and sell it off when its price reaches a high. This is the same like buying the stock of a company when it is low in price and keeping it to sell when it attains a high price. Currencies typically exist in pairs but to simplify the explanation, you can sell your Euros if you anticipate a fall in its price against USD. Similarly you can buy Euros if you feel it will increase in price against the USD.