Forex is a term used for foreign exchange – it is also referred to as FX – and can be confusing for people who hear of this term for the first time. They may be surprised to learn that it’s the world’s most traded market with the average turnover of 4 trillion dollars per day.
What is Forex Trading?
Let’s explain what is forex trading. It is an act of buying of one foreign currency and selling other currency simultaneously. The primary purpose of this is speculation. FX trading is done in currency pairs, for example – USD/EUR, AUD/NZD, GBP/USD and others. The currency prices are always quoted in pairs and therefore the price of a pair is the price of one currency in terms of other in the pair.
There are a number of factors influencing the rise or fall of the prices of a currency pairs and these include economic factors as well as geopolitical factors. The common goal of every forex trader is to profit by the changes in the currency prices and therefore they buy or sell the currency pairs to achieve the goal. Traditionally forex trading was dominated by big investment firms and banks but with the rise of online trading the scenario has changed and more and more retail FX traders have joined the community. With the availability of 24 hours trading and the convenience of home through online trading it is now easy for a trader to start trading in forex and generate profits easily.
What are the benefits of trading Forex?
After knowing what forex trading is, it is also important to know about the several benefits provided by online forex trading platforms.
One key element behind the popularity of forex is the fact that the forex trading market is open 24 hours a day from Sunday to Friday. This is the result of the simultaneous closing of one market and opening of another around the world. On Monday morning it opens in Wellington, New Zealand and then progresses to Asian trade in Tokyo, Japan and Singapore and then it moves to London in the UK and closes on Friday evening in New York in the United States. Running 24 hours a day allows much flexibility to individual traders and they can pick their positions whenever they want.
Another advantage of the forex market is the high liquidity offered by the forex market. A trader can open any position and close it anytime he wants because of this liquidity factor. For every position you take there is a trader present who can take the opposite position for you to balance the trade.
Forex traders can take high value of trade positions by just depositing a small fraction of the money required for trading. This is termed as leveraging and today nearly every forex broker allows you to take leverage which is offered up to 100:1 by many brokers. This means that you can trade with 10000 dollars of a trading position by depositing only 100 dollars as the margin money.
If you are a beginner and want to make a successful career in forex, you should not just understand what is forex and what its benefits are. Understanding the risks of forex and money management techniques are also important which can lead you a successful career in forex.