Everything You Need to Know About Currency Exchange | Motilal Oswal

Know About Currency Exchange

The majority of novices in the investment markets initially tend to lose money. Only one conclusion can be drawn from this fact: trading in investment markets proves to be challenging for freshers. Nonetheless, there is success to be found if investors get the right knowledge, regular practice, and enough experience on the trading floor. Among the many ways to invest, currency exchange is fast becoming popular with many investors. However, is it the right path of investment for everyone? You will only know this if you know about investing in these markets. 

The Currency Market

The very word “currency” is prone to put some investors off currency exchange markets as the term implies “money”. Some investors (wrongly) believe you need large amounts of surplus cash to invest in forex trading (foreign exchange trading). The currency market may be the biggest investment market in the world today, growing at an annual unprecedented rate, with above $4 to $5 trillion notional value being exchanged on a day-to-day basis. However, this is not a reason to get intimidated by it. You may already have had to open a demat account to invest in stocks, so now maybe it's time to try investing in currency. 

Understanding Currency Exchange

Until recently, volumes of currency exchange in these markets were generated by professionals, savvy at handling currency pairs. However, as platforms for trading have only grown, you now find small investors willing to take chances on currency trading. Forex online trading has encouraged retail investors to get involved in these markets, and depending on their unique investment goals, currency markets can yield good rewards. 

What you should first know about currency exchange is that one currency is traded with another. As you probably know, the values of different currencies vary, and these prices may fluctuate on a daily basis, or tend to be stable over periods. Currency prices are dependent on the economic conditions and other geopolitical factors in various nations. 

The exchanges at which you can trade currency pairs are open 24x7, and this is why the forex markets tend to be the largest, allowing for trading to occur most of the time. This also results in the currency markets being the most liquid. Investing in the currency markets will tell you that, although these are the biggest globally, there are a minimal number of currency pairs responsible for the most activity and volumes traded in these markets. 

Currency Pairs

One of the crucial things to know about, as mentioned before, is that currency exchange is done in pairs. Hence, when you wish to go about investing, you will see lists of currency pairs to trade in at exchanges. The pairs may include USD/CAD (US dollar vs Canadian dollar), EUR/USD (Euro vs US dollar), or USD/JPY (US dollar vs Japanese Yen). Furthermore, a price will be linked with each pair. For instance, for the USD/CAD pair, the price may be 1.2569. What does this mean? Essentially, it means that it will cost you 1.2569 CAD to purchase 1 USD. The largest centres for currency trading are New York, London, Tokyo, Hong Kong and Singapore. 

Get an Education

With any form of investing that you venture into, you need to be educated about it. Whether you open a demat account and invest in stock, or try an upcoming IPO, there is the background work to be done. Getting educated in terms of different investment channels can only help you to reach your financial goals faster as well as offer you portfolio diversification. 

 

Related Articles: What Are Cross Currency Pairs And What Do They Mean? | How does a Spread Contract Help in Currency Trading | How Currency Fluctuations Impact your Financial Plan | How Global Factors have Influenced the Value of the Rupee | How Domestic Factors Influence the Value of the Rupee

 

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