Currency Trading Explained

If you have some basic knowledge in finance or economics, it can be a lot of help if you want to get into the business of foreign currency trading. However, based on available statistics, there are many who don’t have any finance or economics background who became successful traders. What they did was to take a few online video courses about Forex Currency Trading and with the aid of a mentor are now enjoying a supplemental income. It is therefore advisable for anybody who wants to go into business to get some crash course and study the feasibility of this endeavor. To start with, you need to get some foreign currency trading explained in its simplest terms.

Currency trading is an international market and the volume of daily transaction all over the world is a mind boggling and whopping $2 trillion plus. When you become a trader, what you do is to buy and sell different currencies, usually by pairs. If you are able to buy a currency versus another at a certain price and then sell it at a higher price, the difference is your profit. That is how simple it is to understand. Of course, that is the concept in its simplistic term. But if you want to make it a serious business, it is advisable for you to trek the steps to gain skills, know-how and experience to be successful. First, know the basics and then proceed from there.

There are some fundamental terms about Forex that you should be familiar with like standard and mini account, spot and forward contract, bid and ask price, bid currency and quote currency, base currency and counter currency, margin requirement, trading platform, currency pairs, pip or percentage in points, spread, open loss, stop loss, leverage, etc. You need also to be aware of what is happening with current international exchange rates. The world’s most traded currencies are the USD (United States Dollar), CAD (Canadian Dollar), EUR (Euro), GBP (British Pound Sterling), AUD (Australian Dollar), JPY (Japanese Yen), CHF (Swiss Franc), SFR (South African Rand) DEM (Deutsch Marks) and NZD (New Zealand Dollar).

Your goal in trading is to make a profit based on fluctuations in currencies you buy and sell. Trading is usually done online wherever you are with access to the internet. Here are the central cities in the world where currency trading is handled. They are in the United States, England, Japan, Germany and Australia. Every time you trade in currency pairs, you should try to get hold of all important and relevant data about the two currencies making up your transaction.

Wisdom dictates that proper risk management is essential and critical in the currency trading business. Some beginners get into currency trading simulation first through a demo account. They invest a reasonable amount of money to enroll in some foreign currency training courses being offered online. If you are serious in making a difference in your financial life, learning from the professionals with proven track record and experience is a wise decision. Others have good testimonials about the E-Toro Foreign Exchange Currency Trading Platform. There are many training and educational resources you can tap if you spend enough time in research online and offline.

Even as a beginner, you can easily appreciate some of the features of the currency trading market. It is not like a stock or future exchange. There is no place restriction. Trading is not regulated by any centralized exchange like the stock exchange. You do not have any clearing house or arbitration panels. Buy and sell is done by agreement or in the form of a virtual handshake or an online nod. The currency trading market is a bit predictable. Always keep updated with what’s happening all over the world through the networks. With its gigantic trading volume and coverage from the United States to Europe, Australia and Asia, the foreign currency trading market is one of the most dominant financial markets anywhere in the entire world. You can aim to become a successful trader and be a part of this global trend by first having the business concept of currency trading explained to you.

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Currency Trading Markets: Important Facts a Trader Should Know

Currency trading markets around the world serve as trading anchors and worldwide decentralized markets between buyers and sellers of different currencies. The values of the traded currencies are speculated by the participants. When you participate in a foreign exchange currency deal, you buy one currency and pay in another currency.

As background info, the currency trading market originated in 1944 after World War ll with the institution of the International Monetary Fund. It tied up the major currencies to the US Dollar which was the least affected at that time. Subsequently, the market was converted to a global free floating currency system in 1978.

In view of the technological advancements provided by the computer and the internet age, the speed of international monetary transactions greatly increased. In the foreign exchange market, the most traded currency pairs are the EUR/USD, USD/CHF, GBP/USD and USD/JPY. So far, the UK has the biggest volume of trading in currency followed by the United States and Japan.

According to reliable estimates, the trading center in London, UK has accounted for an increase in foreign currency transactions from 34.6% in 2007 to 36.7% in 2010. This is why the London market price is the usual quoted currency price in FX trading. The New York, HongKong, Singapore and Tokyo are also very important currency trading centers which transact with banks all over the world. Currency trading goes on systematically. As the Asian trading session finishes, the European session starts. Then, the North American trading session follows and it completes the cycle. Then it goes back to the Asian session.

When it comes to the market participants, they are composed of central banks, commercial banks, investment companies, hedge funds speculators, money remittance companies, non bank forex companies, forex fixing groups and the individual retail speculative traders where you can belong. The retail investors segment has grown rapidly due to entry of retail forex platforms. This group usually trades through brokers/dealers or banks When you deal with a broker, he tries to negotiate the best price in the market for a transaction and charges a mark up fee. You can deal with various dealers particularly those who have connections with the large forex trading banks. These dealers usually get better pricing due to their large transaction volumes. The biggest currency trading banks as of May, 2011 are the Deutsche Bank, Barclays Bank, UBS AG, Cityi, JP Morgan, HSBC, Royal Bank of Scotland, Credit Swisse, Goldman Sachs and Morgan Stanley.

If you are serious in getting into forex trading, knowing some historical facts will be of some good use to you. Trading volume had jumped from a billion dollars a day in the eighties up to almost $2 trillion a day. According to the latest figures, from daily trading volume of $2 trillion, it has grown to over $3 trillion broken down to $1.4 in spot transactions, $475 billion in outright forwards, $1.765 trillion in foreign exchange swaps, $43 billion in currency swaps and $207 billion in options and other products. In 2010, can you imagine that retail trading has grown up to $150 billion volume a day?

The phenomenal rise of electronic execution technology and the various transaction centers have reduced execution costs, developed bigger liquidity and attracted more participants. With the use of online electronic trading, transactions and executions became a lot more convenient for retail investors to trade in the foreign exchange market. Foreign exchange rates are governed by market psychology perceptions, economic factors as well as political conditions. Well experienced forex traders always keep themselves updated with latest developments. Marked by the market’s extreme liquidity, it has become a global and popular trend among the retailers group composed of individual traders to invest in currency trading markets.

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Currency Trading

Currency

The currency market is one of the most popular markets for speculation due to the enormous size of currency trading and liquidity. Any currency has a value relative to all other currencies in the world. Currency trading has many real benefits over equity trading like the stock market. There are two reasons the relative value of a currency fluctuates. The first is as outside investors or visitors buy things within a country, they are driven to convert their domestic currency into the currency of the country they are buying within. The second force for currency fluctuation is speculation. This speculation can have extreme consequences on a nation’s currency and consequently on a country’s economy.

Trading

If you do not have experience in the field of currency trading, you need to at least have knowledge. The attraction to the currency trading market has led many people to look for currency trading courses. These types of course can help prepare you for the exciting world of currency trading. For a deposit of just $2,000 an investor can leverage $100,000 worth of foreign currency or $50 leverage for every $1 invested. The heavy buying and selling in the currency market can drastically impact the value of the currency itself. Trading currency allows traders to earn profits during rising and falling markets. Unlike stocks, there are no restrictions on short selling in foreign currency trading. The “ask” is the price at which a market maker will sell the base currency in exchange for the counter currency in which you can buy. The “bid” is the price at which a market maker is willing to buy the base currency in exchange for the counter currency in which you can sell. The spread is how the market maker and the introducing broker are compensated for their work. The spreads for currency trading are extremely low, making the cost to a trader very low as well. One of the most important differentials in currency trading is timing. As traders feel a given currency will perform strongly or weakly, they will buy or sell accordingly. However, most traders agree that the currency market is no place for beginners. An individual has to take into consideration technical and fundamental data and make an informed decision based on his perception of trading market sentiments and market expectations to become a profitable trader. Every trader has to be aware of the events going on in the market, and also has to understand the subtleties of the market to safely trade.

Conclusion

If you are seeking new opportunities why not investigate what currency trading has to offer? Once you have decided that currency trading is right for you, it’s just like learning to ride a bike. This type of trading is a challenging and profitable opportunity for developed and experienced traders. However, before choosing to engage in currency trading you should carefully consider your investment or trading objectives, level of experience and appetite for risk. But most significantly, do not trade money you cannot afford to lose.

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