Traders going into forex, or foreign exchange, markets shouldn’t assume they know it all. To be sure, if you are a beginner at the forex table, you will have to know certain elements of forex trading before you venture into the currency game. Currency trading, like any other trading, is not for the faint-hearted. Currency markets are some of the largest markets in the world, with huge volumes traded every single day.
Arm Yourself with Currency Trading Knowledge
If you are concerned about currency trading, there is only one way to get over this. It is vital to know how to go about trading with sufficient knowledge before you begin. When you step forth to trade in stocks, the first thing you need to know is to open a demat account. Although you do not have to do this to trade in the currencies, you need to know some forex trading basics - key elements of trading. The forex market has characteristic features that stand out from other markets. Forex stands for foreign exchange, and this is abbreviated to FX. If you know the eight elements, you will be sufficiently prepared to take your knowledge forward.
1. Currency Trading in Brief
Risks in currency trading are evident as they are in any trading activity. It is strategies and plans that help you mitigate these. There is even risk in allocating your wealth to any upcoming IPO if you do not know about the company being invested in. The one thing you should know about the currency market and trading activity, is that markets of forex are decentralised. That means, there is no single exchange responsible for trading activity.
2. One Currency Against the Other
In currency trading, one currency is traded against another. There is no single spot for currency trading, and you can trade any currency for another. The price of any currency, therefore, is determined by participants and organisations like banks. This is why, because it is largely decentralised, you may find different banks within the same city showing different exchange rates for the same currency.
3. Get Your Facts in Order
When you are a novice trader, you may be disappointed by initial losses. You should know that this is normal. However, success can be realised with the right knowledge, practice and a lot of experience. This is the largest global investment market, with some $4 to $5 trillion exchanged in notional value each day. Additionally, more currency traders are set to join the foray of currency trading as platforms become more and more secure with digital technology and features for traders to trade around the clock - 24 x 7.
4. Liquidity
You may be hassled to join the universe of currency trading due to the potential risks in currency trading. However, you should know that the currency markets offer the most liquidity among all the asset markets today. The risks may be there, but rewards are great.
5. Pairs of Currencies
Currencies are traded in pairs - one against the other. For instance, the USD/EUR pair. Every pair is quoted, in terms of price, in pips, or percentage in points. This goes out to decimal places of 4.
6. Trading Sessions
Although the currency markets are said to be open 24 x 7, this is misleading. The markets are shut from Friday evening till Sunday evening. When the markets are active, there are three primary trading sessions - the Asian, European, and the United States sessions.
7. More Trading Volume
According to the particular trading sessions, there are certain currencies that are traded in more volumes. For instance, for traders trading with the US dollar, the US trading sessions will be witnessed as having more volume.
8. Fluctuation in Prices
Currency trading, when undertaken, should consider prices fluctuating due to geopolitical factors, world economic conditions, financial flows, and trades in general. There are trends from the past that traders can study, indicating conditions of trade year after year.
Don’t Be Afraid, Just Trade!
You can enhance your portfolio if you open a demat account to invest in stocks and commodities. You can also subscribe to an upcoming IPO. However, if you want to broaden the scope of your investment, currency trading is a good way, keeping certain variables in mind.
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