Trading forex markets is easy and simple today when we are blessed with high-speed internet service and advanced level computer or mobile devices. It is the trading of currencies and forex is an abbreviation of foreign exchange. In simple terms, it means the exchange of one currency with another for various purposes like tourism or commerce.
Forex is the largest and biggest financial market in the world with a daily turnover of more than $6 trillion. In this article titled Trading Forex Markets, we will try to have a closer look at currency trading and know what are the pros and cons of it.
Forex markets deal in currency trading. If an individual from the US looks for importing a product from Germany, he needs to pay the seller in euros instead of USDs. For this reason, he converts the USD into euro at the prevailing exchange rate. Similarly, if a traveler from London visits New York City, he needs to exchange the GBP (Great Britain pound) into USD.
Forex has been around for centuries. The exchange of currencies has been for centuries. However, the forex about centuries ago was different from today's concept. After the collapse of the Bretton Woods in 1971, currencies of many countries were allowed to freely float against one another. The value of currencies is based on demand and supply. The foreign exchange trading services monitor the demand and circulation.
Most of the forex trading is conducted by investment and commercial banks on behalf of the clients.
Trading forex markets is complex as well as risky. The interbank market is not standardized. Various regulations are implemented. In a couple of regions, it is even completely unregulated.
Banks trading with each other globally makes up the interbank market. These determine as well as accept the credit risk and sovereign risk. These follow internal processes to remain safe.
The forex market is based on the mechanism of demand and supply. The trade flows are huge and rogue traders cannot influence the prices. Hence, investors find transparency and deal through the banks.
Small traders usually trade with small and either unregulated or semi-regulated brokers and these brokerage houses re-quote the prices. It is suggested to initially spend some spare time into the investigating of the forex dealer or broker to ensure being regulated. It is always safe to deal with a regulated agency.
Forex trading is the same as equity trading. Below are some tips to know before starting forex trading:
The first step is to know about forex. Understanding is easy and least complicated. Forex trading requires specialized knowledge like the leverage ratio is higher compared to equity trading. Moreover, the price driving factors are different.
The next step is to set a brokerage account. It is done through an online broker. The brokers usually charge zero commission. In fact, they earn from the spreads, which are the difference between the buying price and selling price.
It is not very possible to predict the forex market. Hence, a trading strategy is needed. A good trading strategy helps in earning money from the forex and minimizing risks.
After opening a trade it is suggested to monitor the position at least once a day. It can be done through software.
Forex is one of the best financial markets to make money. It is decentralized and opens 24 hours a day from Monday to Friday, based on various time zones. It is always traded in currency pairs like USD/EUR or GBP/JPY. It is the biggest and largest financial market in the world with a daily turnover of more than $6 trillion. Credit is the next biggest market in the world.
In this article titled Trading Forex Markets, we talked about the simplicity of forex trading and how to get started. Beginners and novice traders are always suggested to start with low capital as the market is mostly volatile and unpredictable. It is better to start with a demo account as it comes with virtual funds and is considered the best way to learn Forex trading.
Ashly Chole - Senior Finance & Technology Editor