What is Forex Trading?
Simply put, trading currencies is when you buy and sell currencies on the forex market in order to make money.
Defined as the currency exchange rate, this simply represents the rate at which one currency can be exchanged with another.
Rates are always quoted in pairs for example JPY/GBP, the Yen against the Pound and fluctuation occurs through economic, geopolitical and industrial factors – and it’s these main factors that will influence your decision on whether to buy or sell your chosen currency pair.
So for example the JPY/GBP rate will represent the rate at which the number of British Pounds one Yen can purchase. If the currency exchange rate rises, you will sell the Yen back, therefore making a profit.
However bear in mind that whilst vast profit can be made trading this volatile market, as can enormous loss.
Why Trade Currency Pairs?
Forex is currently the world’s largest market platform, with approximately 3.4 trillion U.S dollars in daily circulation, 24 hours a day, 5 days a week. It is now considered a “step” above the equities market where the novice and the experienced trader will benefit from some key differences:
1. 24 hour trading – you decide and dictate when and how to trade.
2. A number of firms don’t charge commissions, which basically means you will pay only the bid/ask of spreads.
3. You can refine and focus your trading on picking from a few currencies rather than from some 3000 to 5000 stocks.
4. You can leverage a trade, but this may well magnify potential gains and losses.
5. Forex is accessible to those on a modest income as you won’t need a lot of money to get started, plus some firms offer incentives to home traders such as bonus capital upfront to get the ball rolling. Reputable firms make money when you make money so it’s in their interest for both parties to succeed.
Why Forex Currency Trading Is Not For Everyone
Having asked the question “what is forex Trading?” – before deciding to trade currencies you should carefully consider your investment objectives, your appetite for risk, your experience and your desire to learn.
Remember, you could well lose some or all of your initial investment trading forex that maybe you cannot afford to lose, so you “should” always seek advice from an independent financial adviser, which reputable firms should supply, before you make that first investment.