Forex trading is a thriving industry especially in the US. It has been in existence for over ten years and is the most popular liquid market in the world. On average, the daily forex trading exceeds 5 trillion dollars. All the other trading stocks do not come anywhere close to this volume even when put together. The US currency is the most traded in forex trading, closely followed by the euro.
What is forex trading?
For some people, forex trading or foreign exchange trading is a very confusing and a thorough understanding of how the transactions take place is necessary before any trading.
Forex trading involves two currencies against one another. One of the currencies acts as the base while the other acts as the counter currency. Taking for example the US Dollar vs the EUR, which also happens to be the pair with most trading worldwide, you can take the EUR as the base and the USD as the counter. On the forex bureau platform the price of one euro will have its equivalent in US dollars. The two prices are the buy and sell prices. You buy the euro at a certain amount and sell it for another amount in US dollars. Whatever difference you get between the selling and buying price is called the spread.
What determines the spread is the global demand for the currency. Demand can either push the values up or down in comparison to the other trading currency.
Facts about forex trading
- In every country, forex trades in pairs. One cost of the currency will always be relative to the other.
- Use of symbols symbolizes the currencies. for example the US Dollars uses USD, the Euro uses EUR, the British pound uses GBP, Canadian dollar uses CAD, Japanese Yen uses JPY while the Australian dollar uses AUD and so on.
- Every forex pair has a different market price. USD/EUR will have a completely different market price from USD/JPY or AUD/USD. This whole price factor shows how much it takes the second currency in the pair to buy the first currency of the pair.
- Sometimes the currencies change several times in a day depending on the conditions in the market. The movement is usually in the fourth decimal places of the currencies known as the pip. An example is if the EUR/.USD moves from 1.2300 to 1.2350. This means that the buying price for the pair was 1.2300 that sold at 1.2350 making a pip profit of 50.
- Every profit made from forex trading depends on the amount of currency you initially purchased.
- The pip worth, also referred to as pip value, is calculated differently for every forex pair.
- The first currency of the pair is the one that acts as the currency to direct the trades in a forex chart.
Reasons to trade forex with renowned bureaus
- A bureau like Saxo will look after your interests and make sure you get reliable access and information regarding every trade you carry out. They offer protection you cannot possibly get if you went at it alone. Other benefits of forex trading with good bureaus are
- You get a broader range of liquidity and can trade for low amounts of pip.
- You get advantage over other traders as they offer every competitive margins.
- With every trade that you carry out, you have better chances of getting price improvements when you trade with a bureau than when you trade on your own. Forex trading bureaus value their customers and offer quality services with improvements in prices and no slippages.
- With forex bureaus, you get less stop-outs, which improve the orders especially when there is a liquidity problem in the market.
With the right guidance and right skills, forex trading should not be a risky business. All one needs to do is understand the basic and have the right starting capital. Seek forex education from a well-established bureau to avoid losses. It is important to go easy with targeting the profits. Start small and in a month, this will compound to a lot more.