Forex trading (also known as Online Forex Trading) is one of the world’s largest economic marketplace, with trillions of dollars are managed every day. It offers Foreign Exchange dealers the liberty to perform trades twenty-four hours a day, no matter what their location. As opposed to other industry trading, this foreign exchange industry functions in a clean and transparent way. In addition, it simplifies the process of evaluating and recognizing trends.
It doesn’t include commissions or concealed expenses. The complete process takes place in a fast pace environment without any delays. Rendering and confirmation will take mere seconds. In addition, it delivers increased influence to traders than any marketplace.
If you want to be successful in Forex Trader, you need to begin at a slower pace. To maximize your earnings in long run don’t commit all of your money at a single go. Money control also performs a crucial role and for those who have refined abilities, you stay a good chance of achieving greater earnings. Make sure the reliability of the Forex Brokers that you will be trading with.
Forex Trading – High Risk High Returns
With increase or decrease in price of foreign currency, you can generate income or generate losses. Traders should always be aware that there exists huge opportunity to make cash but the risk is quite high. Investment in foreign currency commodities is based on the risk appetite. Smaller traders who can not afford to lose money should stay away from these instruments. Forex trading or currency trading is straightforward if you are aware what you are carrying out.
The term ‘Forex’ is quite popular now a days, it stands for Foreign Exchange. Forex trading in simple words is the trading of currencies from different countries against each other. For example the US Dollar ($) against the British Pound (£).
The Forex trading is done in the Foreign Exchange market, which is the largest and most liquid financial market where currencies worth over $4 trillion are exchanged daily. One of the most interesting things about Forex Market is that, there is no physical marketplace for Forex trading. Buying and selling of FOREX is done electronically over-the-counter, the market remains open round the clock. The trading takes place from Monday to Friday 24×5 , the market remains closed on Saturday and Sunday.
The currencies that have the highest trading volume on the Forex market are the US Dollar , Euro , GBP, Japan Yen. Other currencies are also traded with enough liquidity.
The biggest advantages of Forex trading is the ‘leverage’ that is provided by Forex brokers. Usually the stock market or the futures market brokers offer a leverage in the range of 2:1 and 10:1 respectively. But the Forex trading broker offers leverages of up to 500:1 depending on the size of the trade. Which means if I want to buy $100,000 with a leverage of 500:1 , I would need only $200 in my margin account with the broker. The standard Forex trading is done with “LOTS” and fractional LOT (0.1 Lot being the lowest Lot size with some brokers), 1 LOT representing 100,000 units of the currency being traded.
A leverage of 500:1 sounds risky, but its you who decide to use the leverage. Generally traders find it comfortable to use 100:1 Leverage , since currency prices on an intraday basis changes by less than 1% ,which makes it less risky than it seems to be.
What is Forex trading ? Why should modern traders trade Forex in their portfolio?
The foreign exchange market known as forex is a global market for exchange of currencies of different countries. Forex trading involves buying , selling and exchanging different currencies at current or predetermined prices. The current prices of different currencies are set as per the demand and supply of the respective currencies against another. The question of how to trade in forex is facilitated by financial institutions and intermediaries like dealers.
Financial instruments in foreign exchange market
There are different types of instruments in forex trading. They vary depending on the nature of the transaction.
- A spot transaction is one wherein there is a direct exchange between the two currencies.
- A forward transaction is one in which the parties to the contract agree to exchange the currencies at a predetermined rate at a particular date. They may involve actual delivery or some maybe non – deliverable as well.
- A swap is a transaction in which the parties to the contract agree to exchange their currencies for a predetermined time period and reverse the transaction at the end of the period.
- Future is another forex instrument in which the volume of contract is standardised. They are similar to forward contacts in some aspects.
Advantages of trading in foreign exchange market
- The forex market is known as the most liquid, volatile and largest financial market. Thus, the traders can take full advantage of the fluctuations in the foreign exchange rates. There can be possibilities of making huge profits from trades entered into the forex markets.
- The market operates 24 hours a day, five days in a trading week creating possibilities of making profits throughout the day. One can reverse their positions in the foreign exchange markets when losses are made at anytime.
- Usually the cost of the transaction in forex markets is made by an adjustment in the spread. Spread is the difference between the buying and selling rates. Also known as the bid and ask rates respectively. The spread in forex markets are much less as compared to securities like stocks.
In margin based forex trading, one needs to deposit certain funds as margin with the broker to facilitate the trade. Any fluctuations in the foreign exchange rates would be adjusted to the margins. Also in case of any shortfalls, margin calls would be made. This indicates that there are possibilities of huge profits.
Final words about Forex Trading :
There is huge potential to make huge profits from trades in foreign exchange markets but you need to know how to trade in forex. There are brokers or agents to help one in trading in foreign exchange markets. However, there are possibilities of making huge losses as well. Thus, before getting into forex trading one needs to study the markets effectively. There are a lot of dealers online also which facilitate the procedure of foreign exchange trading.