Here's a quick and comprehensive guide on how you can read currency pairs as a forex trader! As usual my objective is to simplify all aspects of trading, so that even someone who has never seen a chart before, can make sense of the topic at hand.
Let's get into it - Currency pairs are a combination of 2 different currencies and we can trade them based on how they are compared to each other in terms of price (weighted against each other).
How can we use this to make money? 1. Understand the Exchange Rate Let's assume that the current exchange rate for EURUSD is 1.10, that means of €1 is valued at $1.10. 2. Buy Euros If you start with $1000 and you believe the exchange rate may increase in the future, it would be a good idea to convert your Dollars into Euros at the current rate. $1000 / 1.10 (exchange rate) = €909.09 3. Wait for Appreciation Now, let's assume the exchange rate increases to 1.15. This means that €1 is now worth $1.15. 4. Exchange Back to Dollars With your 909.09 Euros, you can convert them back into Dollars at the new exchange rate. €909.09 x 1.15 (new exchange rate) = $1045.45
So, in this example, you've potentially made a profit of $45.45 by anticipating and benefiting from a favorable change in the exchange rate.