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Many traders would like to see how to use different financial instruments when they start off. Those options could provide comfort and fixed profit return. In today’s article, we will focus on Forex, which is offered by IQ Option.
Forex overview
Forex comes from the words Foreign Exchange. It involves exchanging various currencies, and it is the biggest market with a traded amount of over $1 trillion every day.
This market has been created as a result of the different financial transactions between nations, people, or institutions. The way it works is the following – one side sells one currency in order to buy another and vice versa. All those transactions require a currency pair, for instance, EUR/USD and 1.800, which means that for 1,800 USD you will be able to buy 1 Euro.
How are prices determined?
The rate of foreign exchange is decided upon supply and demand. This is mostly the case, although the government, central bank, or brokers can have an influence as well.
Today we will focus on supply and demand. An essential part is that every currency comes with a bid and an asking price. The former stands for the amount which one side has agreed to sell at a given moment. The latter is the amount one side has agreed to pay at a given moment. By using IQ Option, you don’t have to own the currency you are purchasing or trying to sell. The goal is to be aware of how to be profitable from those transactions.
How to earn money using IQ Option?
As stated above, the trade of foreign exchange includes purchasing and selling a currency pair. Imagine you have the following scenario – EUR/USD is at 1.1576/1.1578. From this follows that you can purchase 1 EUR for $1.1576 or sell 1 EUR for $1.1578. If you conclude that you want to buy the Euro at this price, then you will be waiting for a future increase in price, which will lead to a profit when selling. On the other, if you are selling at the set price, your wish will be for a future decrease so that you would be able to repurchase it for less money. Your profit or loss is the difference between the price you’ve purchased or sold and the future buying or selling price.
Going back to the last example – if you’ve purchased at 1.1576 and then the price increases to 1.1580, you’ll register a profit of $0.004. It’s not an impressive amount, but it will be different if you’d purchased 100 lots (each one includes 100 units). Then you’ll gain $40.
Who takes part in the market for foreign exchange?
It includes various participants. Because the price is so dependent on the supply and demand, you are trading against other independent traders. Those are the small participants. The big ones are governments and banks. However, you should know that there isn’t one side which is as big as to control the market. This means that you have just as good of an opportunity to make a profit.
Foreign Exchange against Options markets
You will be able to learn more about the two markets and what makes them different in the guide. In this article, you can see just the biggest ones.
There is no expiry date in Forex
When working with options, you must set an expiry date for the trade between 1 min and a month. However, Forex doesn’t need that. The only way to stop trade is if you exit it or when the price gets to a pre-set spot.
Stop losses
This comes in handy when trying to minimize the losses. Imagine that you have put $100 in a trade and have decided on a 10% stop loss. What this does is close the trade once the amount decreases to $90. IQ Option takes care of it automatically. If you are in the market for foreign exchange, you have to be careful about the loss of trades. Because it could affect your balance, this feature offers protection and minimizes potential losses.
Take profit
This one operates as a stop loss. However, the main difference is that this one will stop a trade once a pre-set positive amount is accomplished. By investing again $100, you could decide on a $50 profit, which will automatically make the system exit the trade once reached.
In this way, one could make sure that he/she is making a profit every time and helps you exit at best possible time. The market is very unpredictable so that everything could turn upside down, and you could miss your chance of closing a profitable trade, just because there wasn’t a take profit pre-set.
Leverage
You can take advantage of leverage via IQ Option. By doing so, you can multiply your profit. Imagine that you’ve invested $100 and set leverage of X50. This means you are now trading with $5000, or 50 times the initial amount. It would help if you remembered to use leverage with pre-set stop losses away and take profit.
Trade exit
This options tool ensures that the trader will know the result from the transaction over a set time. With Foreign Exchange, the trade exit is decided upon the price. As long as the value hasn’t reached a certain number, it will stay active. Sometimes this could go for as long as weeks. On IQ Option, you can stop a certain trade manually. A lot of participants decide to trade specific currency pairs, which are expected to experience fluctuations. By doing so, the traders know that the set price will be reached at a given moment. This is a good recommendation for this market.
Returns
When using options, you will receive a return per trade that is fixed. With foreign exchange, you are allowed to get over 100% in returns. This is because here the fluctuation of the market is crucial and as far as you guess correctly how the price would move, you will be earning a profit. When leverage also comes into play, you are looking at a profit as high as 500% in some cases, which makes it a highly profitable way of trading. You shouldn’t forget, however, that you can also lose much more, so setting a stop loss is a great idea.
You are now aware of the basics of fx, so what you can do next starts trading. You can find out more information in the other article about IQ Option before you decide to begin.
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