Currency Trading: The Basics
Foreign exchange trading has risen dramatically in terms of popularity in recent years. This is due to the huge rewards that can be reaped from the trade of currencies and the democratic nature of the trading. With the right knowledge and some targeted practice, anyone can get involved in the forex market. If you’re considering taking up currency trading in a serious way, it’s important to be aware of the basics before you commit yourself and invest your capital.
What is Forex Trading?
Forex trading involves making trades on the foreign exchange market. The value of currencies is constantly fluctuating, and you can profit from the moment of these currencies. The forex market is the largest financial market currently in operation and trades at a volume of $3.2 trillion on an average day. There are so many buyers and sellers that transaction prices are kept manageable and the market operates 24 hours a day. At any given time around the world, there will be a trade taking place, with the exception of between Friday and Sunday evenings. Currency is traded in lots of various sizes. A ‘micro lot’ is 1,000 units of a particular currency, a ‘mini lot’ is 10,000 units, and a ‘standard lot’ is 100,000 units of your base currency.
The Benefits of Forex Trading
There are many reasons why forex trading is currently so popular, including the fact that almost anyone can get involved as long as they have the correct information and have practiced sufficiently with a demo account. The 24 hour nature of currency trading means that you can be completely in control of when and how to trade. Some traders like to do so on leverage, but this can be risky. Only attempt leverage trading if you know what you’re doing. Forex is inherently accessible and you don’t need a great deal of capital to get started, but it’s important to remember that money is easily lost, so don’t invest anything you can’t afford to lose.
How Does the Trading Work?
Forex trading involves buying one currency and selling another simultaneously. Currencies are always quoted in pairs and the exchange rate is the purchase price between the two currencies. There are many factors that impact on the value of different currencies. One of the biggest is the notion of supply and demand. When more dollars are required, the value of the dollar increases. When there are too many dollars in circulation, the price drops accordingly.
Before you start trading, it’s important to read up on the currency market and make sure you understand the basics of foreign exchange trading. Open a demo account for free with a forex broker and use this opportunity to practice making trades before you invest any real capital. There are plenty of online tools designed to help traders, including currency charts from companies like Currencies Direct. Always keep the potential risks in mind, and if in doubt, seek the services of an independent financial advisor.
Filed under: Investing
Like this post? Subscribe to my RSS feed and get loads more!