LEARN CURRENCY TRADING BASICS
Learning the basics of currency trading is not complicated. Building your own strategy and making it work is a different story.
WHAT IS CURRENCY TRADING?
Currency trading is when a person buys and sells different types of currencies, currencies, which are used all over the world. Foreign Exchange, or Forex , is the more commonly used name. Anyone can trade currencies, market access is easy, however, you are encouraged to learn all you can before starting to help avoid unnecessary losses. You can start the learning process from sites like Forexhandel and nextmarkets and try a demo trading account to get a feel for how forex trading works .
WHAT IS FOREIGN EXCHANGE?
The currency or foreign exchange market is the most liquid market in the world. It contains all the world’s money and continues to grow every year. The US dollar is the main currency traded and traded against almost every other currency in the market. Its security and liquidity make it very valuable for traders, allowing them to enter and exit the market at will.
The OTC (over-the-counter) foreign exchange market, what you access with a forex or CFD broker, has no physical location or central exchange and is usually open 24 hours a day, Sunday night through Friday night. Forex trading with CFDs is speculation about the direction a currency pair such as EUR/USD (US Dollar versus EU Euro) will go.
You make money by buying or selling pairs before the move starts and profiting from the amount of movement that occurs. For example, if you buy EUR/USD at 1.1200 and move to 1.1400, you make 0.0200. That may not sound like much, but when you factor in the leverage that CFD trading provides, it can run into hundreds of dollars in profits.
Currency trading can be very difficult, especially for those who don’t know how to make good trades. There are three main sessions that successful traders focus on. This includes European, Asian and US trading sessions. These sessions may overlap but the main trades are associated with the hours this market is open (when the trader wakes up, working hours).
This means that certain partners will be more active during certain times of the day. Those who stick with dollar-based pairs will find the most volume in the US trading session and when the opposing pair’s market is open.
The lot is the standard number of units in the trading currency. When you buy a position, it will be a lot, one lot two lots, three lots or more depending on how big of a trade you want to make. Each lot represents a regulated amount of the financial instrument specified by the exchange you use or the regulator responsible for your jurisdiction.
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Some exchanges and brokers allow micro lots for smaller trading accounts and those with a lower risk tolerance. A micro lot is equivalent to 1,000 units of one currency. If you have an account financed using US dollars, the micro lot represents 1000 USD of the base currency. The mini lot is 10,000 units of your base currency and the standard lot is 100,000 units.
WHAT ARE PAIRS AND PIPS?
A currency pair is an expression of an exchange between two currencies. For example EUR/USD. There are hundreds of pairs, each currency can be traded against the other, you just need to find the right market or exchange.
A pip is the smallest amount of movement among the major currency pairs. It is usually traced as the fourth significant digit after the decimal place but this is not true in some cases. USD/JPY (Japanese Yen) only holds for significant double digits on most exchanges.
HOW FOREX TRADING WORKS
Currencies are traded against each other because exchange rates are always fluctuating. If you buy a currency when it’s cheap and then sell it when it’s high, you can make money. traders watch the market using financial charts of price movements to determine when they want to buy or sell. Since most forex trading is done with speculative pairs and CFDs, you never really have to own the currency you are trading.
For example, if you think EUR/USD will go higher, you would buy 1 lot of EUR/USD. If it goes up you can profit, each PIP will be equal to $0.10 or more depending on your leverage. If you think EUR/USD will move lower, you will sell 1 lot. If it moves lower you will make a profit for every pip that falls.
SO, WHAT MAKES CURRENCY TRADING TRENDY TODAY?
Trading currencies is popular for three reasons; The market is easy to access, it’s challenging, and you can make a lot of money. The problem is that too many prospective traders enter forex trading without full knowledge of the risks. Just like with any investment, it is possible to lose a lot of money. If you place a trade and the market doesn’t move in the direction you want but in the opposite direction, you will lose money with every PIP the pair falls.
Learning the basics of currency trading is not complicated. Building your own strategy to make it work and make it work is a different story. You will need a lot of patience and practice to achieve your goals. There are many helpful articles and online applications that can help you develop your skills to be at the forefront of currency trading.