Foreign exchange is quite different from other financial markets, but there are some specific similarities, unavoidable and profitable ones to say the least. If you are investing in this market or if you already have, you are obviously going the right way with your money. However, and here’s something which will you for as long as you trade in Forex, it is not about going for profits all of the time. Instead, what matters more in the longer scheme of things is the sustained profits. Forex averaging might be something you are completely new to, but you will get a complete idea of it over here.
There are quite a few ways in which you can get a bit more out of foreign exchange trading. Making the best of this market is all about going about it professionally. That is, the professional way of trading is the best of trading. Moreover, Forex averaging is something which professionals do now and then. Moreover, all you need to do is make sure go through thoroughly.
What is averaging Forex trading?
Trading in this market is all about going forward with an investment into a base currency against a foreign currency and earning profits by selling of higher. This is as simple an explanation of foreign exchange trading as you need. However, mentioning this has a reason. Let’s go forward into an illustration.
Consider that you are trading with USD and going into UR. Alternatively, in plain words, you are trading with USD EUR. You have an investment of $200 at 1.040. You add up another $200 when the price goes up to 1.044. So, you end up with $400 investment into USD EUR which is priced at 1.042. This is just what Forex averaging is all about.
Now, you obviously should be thinking whether this is an advantageous position to be in. Looking at this situation from the perspective of the price quote, you are investment now has risen to 1.040 from 1.042 which limits the profit percentage. However, that is not the whole picture.
What happened is that you now have $400 of investment instead of $200. Let’s put the sell short or selling position at 1.048 and your leverage at 250:1 which is quite reasonable. With $200 at 1.040, your total profits will be $400.
While if you have $400 at 1.042 with the same leverage and selling point, your total profits are $600. So, averaging Forex trading gives you a 50% better profit at least with this illustration. However, in general cases, the point is, this can get you more profits.
Understanding when to use Forex Averaging:
There is nothing better than making sure that profits increase with just an added investment. Professionals trade in this market by accounting for the risks beforehand. However, when they find a guarantee of profits, they do what is necessary to utilize the opportunity to the brim.
Forex averaging is something which these professionals do when the time is right, something which you should be doing too. This is one of the easiest ways to make the best of this market.