The currency exchange market has big prospects for every investor. Under this market foreign exchange trading, Fx trading, Currency trading or forex trading are just four different titles often given to act of investing. You need to understand the seven currency trading basics if you are interested in investing in the foreign exchange market.
1) What is currency trading?
Buying and selling currencies is known as currency trading. Profit is made from a positive price change between two different currencies involved in a trade. The forex pair is the two currencies involved in a trade. The US dollar is the most common currency involved in forex trading. It is involved in 85% of all trades.
A forex trader reacts to trends in the movement in price between one currency and another. He properly monitors the financial market. If he buys or opens a trade at a low price and sells or closes at a higher price then he make a profit. Being able to understand what is happening in the market and correctly anticipate the upward or downward movement of currency prices is what matters in this market. Variety of charts, which shows historical trends and patterns, are one of the many tools available to help with the analysis of the market. Numerous software packages make this trading process much easier.
2) The forex market
Around $4 trillion dollars being traded every single day hence, the volume in the foreign exchange market is massive. The main players are the financial investment companies and the international banks but the market has opened up to the small private investors who are entering the market in their droves, especially now with the internet and high-speed connections. Shrewd investors are kept interested in this lucrative market with the constant fluctuation in price between currencies.
3) Investment Capital
Get started for currency trading needs just a few hundred dollars. A broker will open an account for you but generally, they do not charge any upfront fees or commission. They make their money from the spread in buy and sell prices of the currency and from leveraging.
4) Trading hours
The currency market is effectively open 24 hours per day, 5 days per week as the currency market is Global. At 22:00 UTC on Sunday evening, Sydney Australia the currency market opens and closes at 22:00 UTC on Friday afternoon in New York.
5) Risk Factors
Expectations to get rich quick makes many people enter the forex market and this is quite unfortunate. People need to know that forex trading is a skill that can return good profits if you enter with the correct mindset and are prepared to learn the various tricks and techniques. It is not gambling. In this form of investment, the potential profit is high, so are the potential losses too, just like in any other form of investment. Making more gains than losses is the most important thing. That is the reason one should start small and then learn from the mistakes. If you are using any type of automated trading software then ensure you at all times trade with a stop loss, as this will guard you from colossal losses if the market should unexpectedly turn against you.
6) Systems and Strategy
Develop a profitable system with a clear strategy and always keep in mind that the worst enemies are greed and fear. Understanding the markets by studying the charts and getting a feel for the many factors that influence price movement is crucial. Keep trying and above all be unswerving.
7) Be in control
Your investment is under your control. You are not dependent on the performance of a third party, unlike most other forms of investment such as shares and stocks. You are in a strong position to take advantage of positive trends in currency price movements, so long as you learn the currency trading basics and learn to recognize the world events that influence currency prices.
Bruce Parker is a trading analyst, empowering individual investors to make better investment decisions. He provides industry's best finance decisions on unlimited trading, zero brokerage services on equity, currency trading basics and currency derivatives (futures and options). For more information on currency trading India, you can also visit www.rksv.in.