The Basics Of Currency Trading
Currency trading is on a gripping ride with no signs of stopping soon. But how much do you about currency trading? Perhaps, you might have heard about it or even considering to start trading. Therefore to ensure that you don’t get yourself into a world of the dark with your money, here are the basics you should know.
What’s Currency Trading?
Forex trading is arguably the most significant investment market across the globe and still growing. It’s the buying and selling of currencies. Formerly, professional traders and institutions dominated the market, but now with more currency platforms, retail traders also have their chances in the market.
How Currency Trading Works
The markets work 24 hours except that they close only from Friday evening until Sunday evening. Currency trading includes three sessions that include Asian, European, and the US. The currencies in the various markets trade during their market hours. For instance, traders with pairs on the dollar find their volume in the US trading session.
Trading is done in different sized lots, and the micro-lot is merely 1,000 units of a currency. It means that if you fund your account in US dollars, then a micro lot will represent $1,000 of the base currency. There’s also a mini which is 10,000 units and a standard lot at 100,000 units.
When compared with stocks, currency trading has far fewer products. The forex market has only 18 currency pairs; however, there’re several other pairs included. The most currencies traded in the forex market include;
- USD (dollar)
- EUR (euro)
- The CAD (Canadian dollar)
- NZD (New Zealand dollar)
- Swiss franc (CHF)
- GBP (British pound)
- JPY (Japanese yen)
- AUD (Australian dollar)
Fewer trading products, however, can make trading as well as portfolio management a bit a more straightforward task – but not really the general forex trading.
Pips and Pairs
While trading currency, unlike the stock market where a single stock can be sold, trading gets done in pairs. All the currencies are priced to the fourth decimal point.
A pip is the smallest increment of trade, and it typically represents 1/100 of 1%. Trading in micro-lots makes losses a bit easier to manage when a trade is not producing intended results.
Things that Move Currency
Most forces that drive the stock markets also are behind moving the currency market. It’s the main reason as to why stock traders make interest in both worlds.
The most significant force is supply and demand. When the dollar is much in demand, its value increases, and when a lot of them are in circulation, its price drops.
The other factors that move the currency markets include such like the interest rates, political stability of a nation, and the new economic data from largest countries.
The Bottom Line
Trading forex cannot be suitable for every individual because it involves considering a lot of risk appetite as well as the investment levels. Getting a winning experience in forex trading marks the beginning of profits; unfortunately, it requires a lot of experience. Nevertheless, for a start, a bit of the basic in forex trading is essential in your forex trading journey.