Modern monetary systems are far superior to the barter system people used in the old days. Inefficiency and lengthy negotiation were the main reason the barter system became obsolete. Later, bronze, silver and gold came to be used as mediums of exchange in trade.
Globally, currency trading is a major business, and it is estimated that over US$2 trillion is traded everyday. The system of currency trading is also referred to as foreign exchange, Forex, or FX for short. The currencies traded have a relative value to other currencies. The trading uses the purchase and sale of large quantities of currency to leverage the shift in order to earn profit.
Fluctuation in the relative value of a currency is caused by two reasons. The first reason being the "real" market, i.e. in case a foreigner wants to buy a commodity, he is forced to convert his domestic currency into the currency of the visiting place, the currency also fluctuates as it leaves a state.
Speculation is another factor on which the currency fluctuates. The heavy buying and selling in the market can drastically impact the value of the currency. This speculation has been responsible for drastic consequences on the national currency, consequently hampering the growth of a country's economy.
Analysts also consider online currency trading a very "fast market" which is highly volatile. An individual has to take into account technical and fundamental data and make an informed decision based on his perception of forex futures trading market sentiments and market expectations to become a successful trader. One of the variables that is most important in currency trading is timing. The trader has to be aware of the happenings in the market, and also has to understand the nuances of the market to play safely.
Banking conglomerates and large multinationals were the movers and shakers in trading before small investors entered into the market and changed the face of the industry. Although professional help is usually needed before individuals or companies start currency trading, an individual with good understanding of business can also try his luck in the practice.
If you've been trying to find out all about Forex and currency trading, but just don't know where to start, here are the basics. Thousands of investors are now turning the benefits of Forex trading into great returns. Once you learn all about Forex and currency trading, you'll be ready to join the ranks of happy and profitable currency investors.
Learning all about Forex and currency trading may seem like an insurmountable task especially if you're totally new to the Forex market. With the right tools learning the basics and how to tackle currency trading can be accomplished in a relatively short period of time.
Many online sites now offer educational sections. These educational sections start with the very basics and continue on helping you learn more advanced strategies and methods of analysis.
Practice Currency Trading As You Learn
Online Forex broker sites will also allow you to set up a mock account to practice what you'relearning before you actually invest any of your money.
This method of paper trading helps you to fine tune your investment practices. The practice account can quickly help you learn in real time all about Forex and currency trading.
The trades, the terms, and the methods applied to trade currencies are quite different than with traditional investments. The trading occurs in pairs. Currency trades are made based upon the value of one currency as compared to another. These relative values are in constant change.
Price quotes are in pips (percentage in point). If a particular currency quote goes higher, it means that currency is stronger. If it goes lower it means the currency weaker. When you make a Forex trade you're buying one currency and selling another.
Certain basic factors commonly used to determine how and when to place trades are: relative interest rates, economic stability, political stability, and the trade status of the country. Typically the trade is made with one strong currency traded in conjunction with a weaker currency.
The times you can trade is vastly different than in traditional stock, bonds, and mutual funds. . The Forex market trades on a 24 hour, 6 day a week schedule. This helps you be more able to make trades and decisions at times when your schedule allows, not on the traditional 9 to 4 stock market hours.
On a daily basis, eighty percent of Forex trades involve nine major currencies: the U.S. dollar, Euro, Yen, Swiss franc, British pound, Canadian dollar, and the Australian dollar. As with stocks, bonds, and mutual funds there are several strategies and methods taught and used to determine when to make a trade.
Strategic charting and analysis of those charts are of primary importance to many who trade the Forex market. You'll find many sources of courses and education materials to help you learn to evaluate and master Forex.
Now its easy to get started in Forex trading. There are many online sites available to help you learn and implement your newfound knowledge by investing in the currency markets. No longer is trading on the Forex exchange limited only to large companies and banks. Even an investor with a very small amount can participate in Forex trading.
Currency trading is becoming more and more mainstream for the individual investor. While it does take some time to become comfortable, and learn the market, the rewards can be astounding.
What is Currency Trading?
Currency trading is the buying and selling of currencies from around the world. It is the largest and most active trade happening, making trillions of dollars daily. Unlike other trade like stock exchange, currency trading has no specific time of trading. It happens 24 hours a day, 7 days a week.
Currencies
In currency trading, there are currency pairs. A currency pair consists of two currencies, one of which is being bought and the other is the currency used to buy the other currency.
Take a look at this example: GBP/USD where GBP is the British Pound. The GBP is what we call the 'base currency' which has the initial value of 1. This is the currency being bought. Next is the USD or the US dollar. This is what we call the 'quote-currency' and has the value of how much one of the base currency is worth. For example: EUR/USD 1.2436, one Euro is worth 1.2436 US dollars. If you need 1000 Euro, you'd have to exchange it for 1243.6 US dollars. Other major currencies traded are Canadian dollar (CAD), Japanese Yen (JPY), Australian dollar (AUD, and the Swiss Franc (CHF).
The Spread
In currency trading, a currency pair has a corresponding 'bid' and 'ask' price. The 'bid' price is how much the base currency is being sold by the currency broker while the 'ask' price is how much the currency is being bought by the trader. The bid price is usually lower than the ask price and this is where sales are made by the brokers. The difference between the 'bid' and 'ask' price is called the 'spread'.
Changes in the Currency Values
Knowing how currency values changes is important in currency trading. In a nutshell, buy a currency when its value is low and sell it when its value is high. The changes in currency values depend on political and economic events. Foreigners going in a country triggers currency exchange as well as large purchases of commodity from one country to another. Also, we should not forget the influence of speculators in currency trading. They speculate on the increase or decrease of value of a currency therefore will make decisions in advance. It is important to be updated in these influences to the trade to be able to keep up with the fast-paced volatility of the currency trade.
Why Venture on the Currency Trade?
As mentioned, currency trading occurs 24 hours on a daily basis. Traders can decide when to trade their currencies. As changes could happen any time, the trader should always keep watch on the best time to trade. Currency trade does not need a big capital to start. Beginners can start with small amounts and eventually increase their trading resources. There is also no need to play on all currencies on the market. A novice can focus on two currencies at first while getting the hang of it and then expand later on for bigger profits.
Risks in Trading
Naturally, like all trading, there are risks. A trader should keep in mind that the risk in currency trade is high and wrong decisions could lead to losses. Playing safe is okay but the higher the risks, the higher the profit. Decisions are vital so it is best to ask advice from the expertise of brokers whenever necessary.
There are lot of business in the world from which one can make his good fortune. Currency trading is one of these businesses. You can earn a good income from this business. You need to be much conscious in the business and should know the basic characteristics of the currency trading.
In the past, only the financial giants and big multinational companies were allowed to trade currency. Now the technology innovations have made currency trading easy for all. You just need to be online and may start to trade currency.
Forex is the name given to this currency trade market in which powerful currencies of the selected developed countries are exchanged. These currencies include USD, GBP, EURO and a few others. You need not to stock any of these currencies for currency business.
The currency trade depends on the credit agreements. All the transactions in the trading market are regulated by the words of honor. All traders in the market honestly abide by these words of honor.
You should be well versed with the usual terms of this market before you start online currency trading. Sometimes you may face loss on your capital investment in this currency market due to lack of enough knowledge.
There are always ups and downs in the currency trade market. This fluctuation in the forex market is the basis of profits and is motivated by several factors. You will sell a currency with a lower rate of interest. This fund is to be used for buying another currency with higher interest rates. This difference in the rates of the interest fetches you the profits for which you are in the currency trading market.
The monetary value of a certain currency depends on its supply and demand. The foreigners visiting to your country will need the currencies of your country to buy goods and for other expenses.
Similarly the local residents of your country planning foreign tours will require the currencies of their destination countries. So the values of currencies fluctuate with the invasion of the foreign currencies in a certain country.
The market position of a currency is also responsible for the fluctuations in the currency's value. People buy and sell the certain currencies based on the speculation in the currency trading market.
The market value of a certain currency also indicates about the health of economy of the country to which that currency belongs. The high value of the currency is an indication of sound economy of belonging country.
Let us sum up the benefits of trading currency. You need not to have a huge capital amount to start currency trading business, although the market was restricted to corporate investors in the past. You may earn huge gains even in a single deal when the market is in your favor.
If you have enough knowledge about currency trading then there is a minimal risk for you in trading currencies.
