For people who believe that trading is easy, the foreign exchange market can easily take away their money. On the contrary, trading is not an easy task. It is an investment market where anything and everything can go wrong, but with practice, and patience, it is believed to work for most of them in a profitable direction. So let’s understand what it is!
Forex Trading
The currency market, also called Forex or the Foreign Exchange market, is the global investment market that grows annually. It is a platform to exchange currencies of various countries on the global front, and this happens daily, except for weekends when the market is closed. In 2010, the market solely made a turnover of $4 trillion, and since 2007, it has only scaled up and shown a massive increase of up to 20%.
How the market works
- Like mentioned above, Forex is an online 24×5 market that closes only from Friday evening to Sunday evening. These 24 hours trading sessions are a bit misleading as three sessions follow – European, Asian and the United States. The main currencies consisting in these countries are traded during this session, sometimes the timings overlap. For example, traders that are used for trading dollars are mostly found in the US Trading sessions
- Currencies are traded in the form of micro lots and mini lots. A Micro-lot consists of 1000 different units of a base currency while a mini-lot consists of 120,000 units of the base currency. There is another standard-lot that consists of 100,000 units of a base currency.
- All currency exchanges and transactions are carried out in pairs. Like in the stock market, you can buy and sell a stock in the same way, you can buy and sell a currency in the Forex market
- All currencies are in the form of pip or decimal points and the beginners who’re just starting their journey, begin with the micro-lot as they represent a 10-cent move in their price. Even if this does not produce a substantial profit or fund, it makes it easier to maintain the losses. Although there are thousands of stocks available at the global equity market, only 18 of those are compared and outside of the 18, other dollars like the USD, CAD, EUR, GBP, CHF, NZD, AUD, JPY are often traded in pairs.
- The lesser the available trading options are, the higher are the chances of making a profit.
What moves the currency
Day by day, there is an increase in the number of traders in the currency market. This is because the forces that move the stock market also move the currency market since it is one of the most significant places for supply and demand. A straightforward way to understand the market I, when the world needs more of a particular currency (for example, dollars), then the value of the currency (dollars) increases. When there is too much circulation of these currencies, the value drops. Other important factors like Geopolitical tensions, economic state and data from the country also plays a significant role.
