Have you come across your friends or acquaintances speaking about forex trading? All the falling market or returns might seem like a distance jargons, but as soon as you hear about the profits that one can get, your intriguing mind gets hooked on knowing about forex trading and how much interesting it is.
What is Forex?
To define forex trading or exchange, it is a place where you are trading currencies. All around the world currencies are significant for people, irrespective of whether they realize it or not. Currencies are often used in exchanges where you need to conduct foreign business and trade. For example, you are living in the US and want to purchase some French cheese from France. Now either your company who purchases cheese or you need to pay France in euros (EUR) to purchase cheese. So, US exporters must exchange the equivalent value of the dollars (US) to euros.
Why Is Forex Trading Becoming Popular Among Investors?
The following reasons are why investors like forex trading –
●Leverage Product – Using a small amount of money for controlling the larger position
●Trading on Rising and Falling Markets – Investors can trade easily on falling (going short) markets and even in rising (going long) markets.
●24 Hour Trading – Forex trading is an OTC product and it is really not simply restricted to any kind of physical and exchange hours
●Liquidity – Forex trading tend always remain tight, so it means you are dealing cost will always remain low.
●Volatility – Most of the currency prices are often fluctuating among each other and it provides frequent opportunities for trading.
Working Of Forex Trading
Keep in mind that forex is often quoted in pairs; thereby it means one currency versus other one. For example, you can take the example of GBP/USD (i.e. sterling vs US Dollar), now here the fluctuations in the exchange rate among these two can be nothing but where the trader can make huge amount of profits. It is good for investors.
Here the first currency is commonly called as base and this is the one that will go down or up against the second currency. This is called as quote. While trading currencies, it is important that you need to speculate the future direction in which the market is moving. It can be either in a short (sell) position or long (buy) position and this depends on whether the value of the currency will go down or up as per your assumption. Most of the forex price movements are commonly triggered by monetary systems that either appreciates in value.
Ultimately one question that hangs around the corner is whether forex trading right for you. Frankly, forex trading is suitable for individuals who are on the lookout of certain short term opportunities, who really want to make their own decisions in terms of what and where to invest and also for the ones who are always trying to diversify their portfolios.