What is Forex Trading?
Forex is an acronym for foreign exchange. It involves trading the currencies of various countries against each other. Foreign Exchange Trading, also known as FX Trading enables clients to speculate or hedge against changes in the exchange rate of two currencies. Two of the most popular currencies are the U.S. Dollar and the European Euro. A Forex Trade happens when one buys Euros and sells Dollars simultaneously.
A broker or market maker usually facilitates forex trading. If you are a Forex Trader, you can choose a currency pair expected to change in value in which you can gain a profit. The broker or market maker requires the help of a partner in the Interbank Market to fill your position. The broker is dependent upon you in terms of closing your trade. He then credits your account with a loss or gain depending on the market’s movement.
The Benefits of Forex Trading
Because forex trading is worldwide, it is continuous as long as there is a market open anywhere in the world. Forex Trading starts on Sunday evening as soon as the markets open in Australia and closes on Friday evening when the New York markets close. Forex Trading offers very high liquidity. This means that it is possible to move large amounts of cash in and out of another currency with minimal price movements. The spread is defined as the difference between the selling and the buying price. The cost of the transaction is usually included in the buying price. Traders benefit because forex trading requires low transaction costs. One other benefit is leverage. Forex allows leverage which means it allows traders to trade more money than what is actually in their accounts. Forex has neither limitations nor restrictions in directional trading. This allows you to go long if you think a currency pair will increase in value. Conversely, you can also go short or sell it if you think otherwise.
Some Tips For Trading
It is possible to practice before actually using real money on a demo Forex trading platform. It is best to get familiar with it first. Know the factors that move currency markets. Economic and political stability are just two of the factors that affect it. The three Forex Trading strategies used by traders are the carry, momentum and value trade. Understand these strategies to get a better grasp of the market. Manage your risk well. Be aware of strategies that can minimize losses such as stop losses or limit orders. Limit your self to currencies which you know well. Usually major currencies like the U.S. Dollar and the European Euro are more liquid, have tighter spreads and are less volatile. Manage your emotions. Often one doesn’t make the best decision under stress or when you want to recoup your losses of the previous day. Do not expect to win all the time but always strive to base your position on well researched data.