The Basics of Currency Trading

Do you think currency trading is easy? Well, think again. It is not easy rather it is very tough. If you want to succeed in the investment market, you have to educate yourself with the basics of the market. And yes, success comes from practice. Let’s delve into the basics of currency trading – what it is and how it works.

The Forex or currency trading market is the largest investment market in the world. It is growing annually at a substantial rate. For a long time, the volume of the trade came from the professional trader but these days the currency trading platform for retailers have also improved. So, we can see them taking the plunge into the currency market to meet their investment goal.

How Currency Trading Works?

Currency Trading is open 5 days a week and for 24 hours a day. It is closed from Friday evening to Sunday evening. But since, all the large currency trading markets are situated in different time zones, there is some overlap in the trading sessions

Currency is traded in lots. They can be of varied sizes. Say for e.g. micro lot is 1,000 units,mini lot is 10,000 units and a standard lot is 100,000 units of a currency. If you are trading in U.S. dollar, a micro lot will be $1,000.

Pairs and Pips

All currencies are traded in pairs. In a Forex market to buy a currency, you have a sell another currency. All currencies are priced out to the fourth decimal point. The smallest change or increment of in the price of a currency is called a pip or percentage in point.

Since the risk of movement in currency is minimum in a micro lot, retailer and small investors or beginners prefer to trade in that size. It makes the risks more manageable.

Fewer Products as compared to Stock Market

Stock markets have thousands of stocks that can be traded which make it a lot more challenging to manage it. In case of Forex, the major volume currency trading is limited to 18 currency pairs. The eight currencies that are traded most are the U.S. dollar (USD), Canadian dollar (CAD), euro (EUR), British pound (GBP), Swiss franc (CHF), New Zealand dollar (NZD), Australian dollar (AUD) and the Japanese yen (JPY). Even though managing currency trading is not easy, but having fewer options makes it more manageable.

What Currency Movement happens?

Currency market is also driven by the concept of demand and supply. If there is demand for U.S dollars and its supply is limited its price will increase and vice versa. Other factors like economic condition, political situation, etc., of a country also affect the currency value and its movement.

Conclusion

In order to benefit from the Forex market and learn the winning secrets, you need a lot of practice and the ability to analyze the market trends. With a bit of interest, education and practice, you can take the plunge into currency trading.