The forex trading is very easy to understand. It is simple math that can be understood by anybody. This is one additional advantage that attracts more investors to trade in currency exchange. There are currency pairs which are to be traded using real money in the international market. The buying is done at the ‘Ask’ price and the selling is done at ‘Bid’ price.
Consider the EURUSD currency pair with current quote at 1.2351, which means that one euro is equivalent to 1.2351 US dollars. This is applicable to any number of multiples of euro or US dollars. A forex trader decides investing $100 with a leverage of 1:100 to and takes a buy stand for the currency pair EURUSD. The actual value of the trade is buying 10,000 units of Euro and selling 12,351 units of US dollars at the rate of 1.2351. As the market moves on, the price also keeps fluctuating. The deal is closed when the price hits 1.2399. Since the price difference is 0.0048 (1.2399 – 1.2351) with an investment of $100 and a leverage of 1:100, the trader gets $48 (0.0048 x $100 x leverage factor 100) as profit and the invested $100 as well. The same calculation holds good in reverse for losses.