The last decade has seen major fluctuations
in currency with markets experiencing record-breaking highs and lows. During
the most recent economic recession, the foreign exchange markets were put under
the microscope. As they dominated news headlines, some people were able to take
advantage of these major fluctuations to make a considerable amount of money.
Trading currencies has the potential to be very profitable, but, like other
forms of investment, it also comes with a considerable amount of risk. Before
you learn how to trade on the Forex
market, you should consider your investment
objectives, experience level, and the amount of risk you’re willing to take on.
The money you choose to invest should be money you are able to risk. Investors
should make it a rule of thumb to never trade with money that they cannot
afford to lose.
The value of the world’s currencies goes up
and down on a consistent basis. In the past, the trading of currencies was
generally limited to big money investors like financial institutions and
large-scale corporations. However, with the introduction of the internet and
the increased acceptance of online trading, individual investors have become
more intrigued with the foreign exchange market as a way to turn a profit and
maintain a well-balanced portfolio. As accessibility continues to increase, the
online trading boom has brought forth a number of new investors hungry for more
information on how they can profit from the fluctuation of currencies.
The Foreign Exchange market is the largest
and most liquid marketplace in the world. The average daily volume transacted
in the Forex market is about $3.2 trillion. Since there is such a large number
of transactions on a daily basis, brokers and brokerage services are able to
keep transaction fees fairly low, as there is plenty of demand in the market.
Am I Buying?
The buying process is very similar to that
of other markets. For example, when an investor purchases stock in a company,
there is no physical exchange of money for stock. But rather, the shares are
tracked through a broker or online account that monitors the value of those
shares over time. The shares can then be sold at a profit (or loss), depending
on the current market conditions. The same goes for trading currency. There is
no physical exchange of one currency for another. Instead, investors are
trading the change in value of one currency relative to another.
It is important to note that investing places
your capital at risk. The main reason that Forex exists is to serve as a currency
exchange centre for multinational corporations that need to trade currencies
continually. Day-to-day corporate needs constitute about 20% of the daily
volume, while the remaining 80% are speculative in nature. Since currencies are
always quoted in pairs, traders are actually buying and selling a currency in
the same transaction.
Learning how to trade on the Forex market can
be a fun learning experience, especially with the introduction of demo
accounts. These demo accounts allow prospective traders to learn the ins and
outs of the foreign exchange market without having to risk any real capital.
This hands-on experience is a fun way for traders to learn how the market
operates and identify trends in currency fluctuation over time.