Many people would like to know exactly what FX trading involves and if it is possible to make a profit from it. It is possible to make a profit in this financial market, but before you can achieve that there is a lot to learn
What is FX Trading?
FX trading involves trading currencies to make a profit. We all know that different countries have different currencies and it is possible to trade these currencies against each other. The forex market is a decentralised market where retail traders can trade using a trading platform provided by a broker. Online trading has opened the world of forex to the average person allowing them to make money by buying and selling currencies.
Currencies to Trade
When dealing with FX trading it is important that you know which currencies you will be able to trade. There are 4 major currencies which most traders work with including Euros, British pounds, Japanese yen and US dollars. These currencies are traded against each other in pairs such as USD/EUR. Trading will always be in pairs where you are purchasing one currency against another. The currency you deposit and deal with through your platform does not have any relation to the currencies you trade as your broker takes care of exchanges and transactions.
How is Profit Made?
Knowing about what forex is and the currencies you can use is the basic knowledge that any new trader should have. However, the real questions come when looking at how you will actually make money. To put it simply, the money making strategy behind FX trading is to buy low and sell high. An example of this would be buying the Euro against the US dollar when the exchange rate is $1.3 to the Euro. If you sell the Euro when the rate is $2 to the euro you have made a profit.
To trade in the market you need access to a trading platform linked to a reputable brokerage company. The platform enables the buying and selling of currency and once the trade is complete a small fee is paid to the brokerage company. Trading platforms vary in their displays, features and ease of use so it is recommended that you use a demo version first.
When choosing a trading platform you must be comfortable with the controls and happy that it includes all the features you desire. Certain platforms include only the basic features of buying and selling with limited trend data or reporting. More integrated platforms offer trends on the currencies, news which will affect the prices and advanced reporting.
The Benefits of Trading
Going into FX trading can offer a range of benefits with the most important being the ability to work from home and being your own boss. If you are able to master trading, you should be able to make quite a bit of money. You do not have to invest a large amount to reap sufficient dividends.