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If you have ever travelled abroad - and nowadays many people do so - then you’ve experienced what Forex trading is at this very moment when you’ve exchanged your money for the local currency. Surprised? Well, read on to find out what Forex really is.
Forex is an abbreviation of two words: Foreign Exchange. It is a decentralised global currency market with a daily turnover that equals 5 trillion USD and is continuously growing. This makes Forex the largest and most liquid currency market on the globe.
Who trades on Forex market? Banks, businesses, individuals such as traders and investors can speculate on currencies and exchange almost 24/7. That is an impressive achievement for a market without a central base or HQ. Forex trades are made over the counter — trader to trader or through forex brokers or dealers — rather than through a central exchange. It all happens on Internet, via innovative trading platforms, such as CMC Markets Next Generation platform. And because traders work across various time zones, therefore Forex market is open 24 hours a day, 5 days a week.
Currency trading on Forex means trading on a pair, not single currencies.
Most important currency pairs in the world are: euro/US dollar (EUR/USD); Pound Sterling/US dollar (GBP/USD); US dollar/Japanese Yen (USD/JPY); US dollar/ Swiss Franc (USD/CHF) and Australian dollar/US dollar (AUD/USD). But you can trade on many more pairs - most reliable brokers offer even over 300 currency pairs.
Exchanging currency for another on Forex market means you sell one and buy another.
So within a particular pair, one currency will always be the base and another will always be the counter - you speculate on whether the price of the base currency will rise or fall against the counter currency. To put it simpler, there’s an example: when you want to buy USD and sell JPY, you would buy USD /JPY pair. Alternatively, when you want to buy USD and sell JPY, you would sell the pair.
A variety of factors play important role in currency trading. These include inflation, interest rates, political stability, recession and government debt.
Consequently, these factors cause a currency to decline and every trader must be aware of it. That’s why currencies of politically and economically firm countries are more appealing to traders.
To successfully trade on Forex market, you need a trading plan and strategy. However, you must remember - that will not guarantee you any profits. Each trade poses a risk, not only on Forex market. That’s why a good strategy is essential. There is a wide selection of strategies: scalping, day trading, swing trading, hedging.
Forex trading is fast-paced and challenging option for investors from all over the world. With an instant access to global markets and currencies, it seems easy to enter the trade and earn money. But each trader must remember that Forex is not the right trading option for everyone - if you are hasty and impulsive, or cannot accept some risk levels, then currency trading is not for you. If otherwise, then why not start your Forex journey today?