If you are looking at entering the foreign currency trading market then you must understand what it is and how it works. It is only once you have this knowledge that you can begin to trade effectively. This article acts as a guide for the new and potential forex traders discussing the different aspects of the foreign currency trading market.
What is foreign currency trading?
Many individuals find it difficult to define currency trading when it is quite a simple concept. Foreign currency trading is when one exchanges one currency for another currency. This transaction can be done in a number of ways. The currency can be exchanged through banks, travel agents or via the foreign currency trading market. Of course, if you should choose to use the market you will be dealing with virtual and not physical currency.
What is the foreign currency trading market?
The forex market is the arena where traders come together to exchange foreign currency, as is explained above. It should be noted that the trading is conducted using currency pairs and is all done online. This online feature has allowed traders to access the market from any location as long as they have a computer and reliable internet connection. Unlike other trading markets, the forex market operates on 24 hour trading times from Monday to Friday. This allows traders to trade whenever they wish during the business week creating greater trading opportunities for all.
What is the market size?
The forex market is the largest of all the financial trading markets operating in the world today. It has a daily return of approximately $4 trillion and allows for trading of every global currency. This is one of the most attractive and unique features of the market.
Who can trade on the market?
Another of its defining features is that the forex market is accessible to all individuals due to its online format. Unlike the stock market that requires a broker to buy and sell your stocks, the forex market gives you the option of working with a broker or independently. As is mentioned above, forex can be traded from any location as long as you have a reliable, high-speed internet connection and a computer.
In order to trade you will require a trading platform which can be obtained with registering with a broker. You will require a brokerage trading account to trade but the use of a broker as a ‘middleman’ is optional. Once you have the trading platform you will be required to deposit an initial trading capital with which you will trade. Traders do not require large amounts of initial capital and most brokers have allowed people to open trading accounts for as little as $10.
How do you make a profit?
The rule of thumb to make money on the forex market is by buying low and selling high. The money made between the buy and sell prices is the profit. Of course, all trades are risky and the chance of incurring a loss is as great as that of a profit. The result of a trade is often dependent on the market movement, however if you are trading on detailed analysis the chance of a loss is reduced.