How Forex Works. What is Currency Trading? The term “currency trading” can mean different things. If you want to learn about how to save time and money then read on this article. These article, on the other hand, discuss currency trading as buying and selling currency on the foreign exchange (or “Forex”) market with the intent to make money, often called “speculative forex trading”.
How Forex Works
The currency exchange rate is the rate at which one currency can be exchanged for another. It is always quoted in pairs like the EUR/USD (the Euro and the US Dollar). Exchange rates fluctuate based on economic factors like inflation, industrial production and geopolitical events. These factors will influence whether you buy or sell a currency pair.
Example of a Forex Trade:
The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit. Please keep in mind that forex trading involves a high risk of loss.
Why Trade Currencies?
Forex is the world’s largest market, with about 3.2 trillion US dollars in daily volume and 24-hour market action. Some key differences between Forex and Equities markets are:
1. Many firms don’t charge commissions – you pay only the bid/ask spreads.
2. There’s 24 hour trading – you dictate when to trade and how to trade.
3. You can trade on leverage, but this can magnify potential gains and losses.
4. You can focus on picking from a few currencies rather than from 5000 stocks.
5. Forex is accessible – you don’t need a lot of money to get started.
Why Currency Trading Is Not For Everyone
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose.
Every trader makes mistakes, so it’s a good idea to familiarize yourself with a trading environment before you invest your money. To improve your trading skills, try opening a free demo trading account with a Forex company.