What to do and how

The Main Idea

You have hopefully understood the main concept by now. Buy currency at a lower price when you feel its value is about to take a hike. When that hike comes and the value increases, sell it at a profit.

The transaction always takes place between a currency pair. Let’s look at this idea with the help of currency AAA and BBB. So you think the value of A is about to increase in the coming days/weeks. You see the quote “AAA/BBB 1.5”. This means that for 10 BBBs you can buy 1 AAA. You buy a Standard Lot (A Standard Lot means 100,000 units. More on this later).

Now you paid 150,000 BBB (1.5x100,000) and bought 100,000 AAA. A month passes and there has been a major hike in the value of AAA, just as you expected. The quote now says “AAA/BBB 1.6”. So you sell i.e. you sell the 100,000 AAA you bought for BBB.

Whereas initially you invested 150,000 BBB, you now get 160,000 BBB. The 10,000 BBB difference is your profit. You did nothing other than buy and sell at the right times and now you have 10,000 more BBB than you did before. This is the main idea.


Even though the fx market itself is a 24 hour business, the particular broker you’ll be working with is not going to work all day and all night. They usually get off at 5 pm. This means that something needs to be decided about the open positions.

The broker will rollover all positions and credit or debit the interest (more on this in a bit). A tip for new traders if they don’t want to engage with this interest situation is to close their positions before 5 pm.

Now for the interest and how it’s decided. When the trader makes a transaction they buy or sell. What they sell they actually borrow from the broker as most of the trading is leveraged. Leverage is part of margin trading which we have dedicated an entire chapter to.

What you need to know for now that most fx trading is margin trading in which the trader doesn’t need to have the full amount they’re trading with, in their account. They can borrow from the broker. With such transactions then, they pay an interest on the currency they borrow, and earn interest on the currency they buy.

If the interest rate on the borrowed currency is higher than the one they bought then at the time of rollover, the rate will have to pay interest (the difference between the interest rates of the two currencies in a position).

On the other hand, if the interest on the borrowed currency is lower than the one that is bought, then the trader will earn interest as the differential will be positive.

Like we said before though, if you don’t want to pay/earn interest you can simply close all positions before the rollover happens.

Now you know all the ways money can be made in Forex- through profitable trades and interest. How do people navigate their way through these processes though? Well it’s peculation, mostly. It may seem like a flimsy foundation to base business on but there is a method to this madness, believe it or not. The next part explains that method.

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