Currency Trading Basics
Average person has not heard about Forex trading, but most of those who are interested in trading surely know what it is. It is buying one currency against another. The market where these operations are done is called Forex or Foreing Exchange market. Since its inception, Forex has become the biggest financial market in the world, far more bigger than US and Britain's stock markets taken together.
The advantage of the market over other money markets is that Forex operates 24 hours a day and 5 days a week. So, if you have opened a position in eur/usd pair during London session, you do not have to worry to close it before London session begins as your position will stay opened through London, American, Asian sessions and even longer. You decide when to close it.
The idea of currency trading is not complicated at all. Every trader wants to profit from price fluctuations in different currency pairs. He buys in expectation that one currency will appreciate against another and sell when he expects that currency to depreciate against its' counterpart.
Forex traders try to maximize their profits using what is called leverage. Leverage is the amount of money ratio of amount used in a transaction to the required deposit, which in simple words would mean that you have your initial deposit and the dealer or the bank can provide you with extra capital to trade, which can be up to 100 times bigger than your deposit. In that case your leverage would be 100 to 1, one dollar yours and 99 dollars come from your dealer. You use borrowed capital to increase your profit possibilities.
As you see this kind of leverage can make the businesses very profitable and also very risky. For those who do not understand what they do it will be very risky and devastating game as they will probably lose all of their capital. However, if you learn some good forex trading strategies, gain the edge and have a solid money management rules which you diligently follow you will be able to take advantage of leverage and make a lot of money.
So, these are the basics of currency trading. I do not want to go into a variety of terms that are used in Forex, because it would take too much time. I hope to do it next time. Good luck in learning currency trading. Hope you will be profitable.
The advantage of the market over other money markets is that Forex operates 24 hours a day and 5 days a week. So, if you have opened a position in eur/usd pair during London session, you do not have to worry to close it before London session begins as your position will stay opened through London, American, Asian sessions and even longer. You decide when to close it.
The idea of currency trading is not complicated at all. Every trader wants to profit from price fluctuations in different currency pairs. He buys in expectation that one currency will appreciate against another and sell when he expects that currency to depreciate against its' counterpart.
Forex traders try to maximize their profits using what is called leverage. Leverage is the amount of money ratio of amount used in a transaction to the required deposit, which in simple words would mean that you have your initial deposit and the dealer or the bank can provide you with extra capital to trade, which can be up to 100 times bigger than your deposit. In that case your leverage would be 100 to 1, one dollar yours and 99 dollars come from your dealer. You use borrowed capital to increase your profit possibilities.
As you see this kind of leverage can make the businesses very profitable and also very risky. For those who do not understand what they do it will be very risky and devastating game as they will probably lose all of their capital. However, if you learn some good forex trading strategies, gain the edge and have a solid money management rules which you diligently follow you will be able to take advantage of leverage and make a lot of money.
So, these are the basics of currency trading. I do not want to go into a variety of terms that are used in Forex, because it would take too much time. I hope to do it next time. Good luck in learning currency trading. Hope you will be profitable.
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