If you are one of that person who is thinking to try your hands on Forex Trading and want to learn the basics of Forex trading, then you have landed on the right article. In this detailed article, you are going to learn about what Forex trading is and how you can become a master of this trading game.
First of all, let me tell you that this market is open only for all but profitable for only those who have the proper knowledge. To learn how it works and how you can gain huge profit, you first need to learn the basics.
What is Forex Trading?
The term Forex is comprised of two words; “Foreign” and “Exchange”. Forex or foreign exchange is the process of exchanging of currencies of two different countries at agreed rate. To make you properly understand what Forex Trading is, I need to explain you something. Suppose, the value of U.S. dollars is going to be down compared to Euro. In this situation, if I am a forex trader then I will buy Euros and sell Dollar. After buying Euros, if the value of Euro goes up then the purchasing power of Euro will also become higher and on the other hand, the value of Dollar will fall. Forex trading is done in a pair of currencies of different countries, for example, dollars-euros.
Forex trading is very much familiar with stock trading. In a stock trading market, a trader looks to buy only those stocks whose price may go up in future or have a potential for future. Similarly, if a trader finds the price of any stock may go down, he/she will sell it out. So, you can see the similarity between these two markets. The only difference between these two are, in stock exchange a trader buy or sell stocks and in Forex trader buy or sell currencies. Forex is undoubtedly world’s most traded market with the turnover of over $5 trillion in a single day.
What is an exchange rate:
An exchange rate is simply the value of a country’s currency in another country. For example, if a tourist from the United States visits India to see Tajmahal, then he/she can not pay the India guide in US dollars because the dollar is not locally accepted in India. In this situation, the visitor needs to convert the dollars into Indian Rupees and give the tourist guide.
So, in the above-mentioned example, the exchange rate is how much value the US tourist will get in exchange of US dollars. Different countries have different currency values which must be converted to use them in any particular country.
Where is Foreign Exchange done?
The best feature of Forex exchange is there is no marketplace for trading currencies. Rather than a marketplace, the exchange procedure is done via “over the counter” or OTC. The OTC process means there will be traders from all over the world and the transactions are done electronically. Forex market is open for 24 hours every day and 5 and 1/2 days per week. There may be no marketplace for exchange, but there are many financial centres all over the world which includes, New York, London, Hong Kong, Singapore and much more. The exchange rate constantly changes, and another interesting thing about forex trading is, if the trading period in any country ends, in another country, trading procedures begin which it makes 24 hours active trading market.
Reason Behind Changing exchange rates:
You have heard about the constant changing in currency rates, but do you know what the main reason behind this is? Don’t worry because you are going learn this here too. Demand and supply of any country effect the most in changing the currency rates. If the supply or demand fluctuates of any country, then the value of the currency of that particular country also fluctuates.
In short, if supply for a currency go up or the demand for the currency goes down, then the value of that particular currency will go down. On the other hand, supply for a currency go down and the demand goes up then the value of that money will automatically rise.
Forex market is exciting and very interesting because all the things are done in real time. The prices of Forex may change depending on various indirect factors- the Monetary policy of any country can effect in determining the currency value as well currency intervention. If the political situation or economic situation of any country is not stable, then chances are there to see fluctuations in forex prices. Even there are causes which one country can not handle that is, natural disasters. Yes, natural disasters can have an impact on forex exchange prices.
How actually Forex Trading works?
In forex trading, there is a broker who will create the market with which you can exchange currency. The agent or broker works as a middleman. In forex trading, you are the trader who is willing to buy or sell currency at an agreed price. You need purchase a pair of currency which in which you see the potential for future. In pair means, suppose “USD-EURO” might be the pair. For example, you bought 100 Euros 2 year ago which was equivalent to 150 dollars. Now the value of Euros gone up comparing to dollars and now your 100 Euros equals 200 Dollars, so if you end the trading, you will get 10% profit in today’s value.
So, to learn the game of Forex trading, you need to be good forecaster also who can analyse the market and understand the market. Of course, the forex trading market has risks involved, but one can not underestimate the potential and profitability of this trading market also. It always recommended to understand the basics and start then only.
The forex market big and global, and the best thing is that you don’t have to rely on the specific market for trading, there many country’s and pairs of currency which you buy or sell depending on the market. Now, I hope after reading this detailed article your interest towards Forex trading may be increased more. If you have any question or confusion, then please leave a comment and you can expect a quick reply. Thanks for reading till the end.