Forex Basics Traders Should Know About
What is Forex?
Forex is where currencies are traded and daily, these foreign currencies move up and down every time and it is this movement of currencies that traders want to make profit from. By trading currencies, forex traders can make profit from these movements.
Forex is the largest financial market trading a daily turnover of $7.2 trillion dollars every day. The New York Stock Exchange which trades about $55 billion per day. Due to this size the market is the most liquid market in the world and what this means is that there are many traders participating in this market ready to buy or sell any currency at any time which means there is a lot of trading activity in this market. The large volume of trading also means the transactions costs in Forex are low: this is also another reason why the market is popular with many currency traders.
Currency traders trade the market directly from their computers or laptops as long as they have an internet connectivity. Traders access the market through retail Brokers. A trader opens an account with a broker and can then place trade transactions in the Market through their broker.
The broker also provides traders with leverage which money that traders can borrow & trade with. This leverage has contributed to a lot of growth in the market because now small investors and speculators have access to the market as they can start investing with little of their money and borrowing the rest through leverage.
How Currencies are Traded?
Forex currencies are traded in the form of currency pairs. For example the most popular currency pair is the EURUSD. Forex trading is the simultaneous buying of one currency and at the same time selling of another currency. For example trading currency EURUSD means a trader buying the EUR will simultaneously sell USD and this is why currencies are traded in pairs.
If a trader thinks that the EURO will gain value against the US Dollar, then the trader can buy EUROs and Sell US Dollars buy buying the currency pair EURUSD.
Trade transactions are placed through a broker. A trader will have to first of all open a Account before they can trade currencies with their broker. Once a trader opens an account with a broker a trader can then place trades in the Market using this trading account provided by their broker.
Advantages of Trading Forex
1.Transactions costs in Forex are low because of the high volume of trades. The only transaction cost in Forex trading is the Spread which a trader pays once they open a trade. No other trade costs are charged.
2.The market provides access to borrowed capital that traders can borrow and trade with through what is known as leverage. Leverage is what makes accessible to many retail traders as they can open an account with little capital and borrow the rest using leverage and trade with this borrowed capital.
3.The Market is Open 24 hours a day meaning a trader can trade at any time they want.
4.Forex Market is accessible from all over the globe and traders can access the Market as long as they have a computer that has internet connectivity. All traders need to do is to connect to their broker through their account and place trade transactions in the Market through their broker.
What you Should Know before starting Trading
Forex currencies keep moving every time up and down and these moves are the ones that traders trade in order to try and make a profit. However, sometimes currency market moves can be volatile and unpredictable. This is why traders should first of all take time to learn about how the market works before opening their accounts.
Traders should understand the risks involved in Forex trading especially when it comes to leverage because leverage increases profits as well as losses. This is why traders should lean forex topics such as money management and money management rule that they should use when trading currencies.
