Currency Trading Basics
Currency trading takes place every time one currency is exchanged for another and a forex trader is simply a person that tries to make a profit from fluctuating currency rates. In the past, currency trading was restricted to only large institutions such as banks and traders or large corporations. This was because there is no central exchange for currency such as you have with stocks and commodities. The forex market only exists in the internal network of banks known as the interbank market. With the rapid growth of the internet it became possible for brokers to offer access to the interbank market for their clients and thus facilitate currency trades. Click Here to read about one of the best forex robots available The currencies of the world are always quoted in floating rates, as a currency only has a value when compared with another. For this reason currency is always traded in pairs such as USD/EUR. Though there are many different currencies available, you will find that only a few of them are traded in numbers that are sufficiently large enough to make a profit as a day trader or short term trader. The biggest pairs, also called the major forex pairs are USD/EUR, USD/JPY, GBP/USD, USD/CHF and EUR/CHF. These pairs make up 85% of the entire forex market, so it makes sense to focus on them as a forex trader. Of course you could go in the other direction and focus on the minor pairs. They are not traded as much, but you have a greater probability of becoming an expert on the subject. Every time a forex trade is made, it includes the simultaneous buying and selling of two currencies. If you think one currency, such as the EUR, will go up in value, then you buy that currency with another currency, such as the USD. Then you have in reality bought the currency pair USD/EUR, where the first currency is called the base currency and the second currency is called the quote currency. Click Here to read about one of the best forex robots available Say you buy 10 EUR for 10 USD, which is not the actual price, but used for simplicity. What you are doing is selling 10 USD and in return buying 10 EUR. Say, you were right and the EUR appreciates in value so that it is now worth 15 USD. You then sell 10 EUR but instead of receiving the initial 10 USD you can now buy 15 USD. Your profit is then 5 USD. This is what is known in forex terminology as opening a position (Buying EUR with USD) and closing the position (Selling EUR and buying back USD). In the real market, the price fluctuations are much smaller. This is why a standard forex trade involves buying a position of 100,000 units of whatever currency you are trading. This is made possible by leveraging your money. If you have a $1,000 trading account you can actually trade for a $100,000 on a 100:1 leverage. This article has provided some currency trading basics, please read the other articles on the left hand menu to learn more about this interesting market opportunity.
Note: Forex Trading is a very risky form of online investment and is not suitable for many traders. Please read the investment disclaimer on Forex trading. All information on this website is for informational purposes only. The use of this website constitutes acceptance of our terms and investment disclaimer. |
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