Currency trading is also called as foreign exchange trading (FOREX) and in this sector, all sorts of global currencies such as American Dollar. Indian Rupee, Japanese Yen, etc, are traded by the individuals. It is a huge market compared to stock markets and others as it is global and is highly liquid in nature, because of the global scope of trade, business, and finance.
The trade happens buy trading in terms of currency pairs such as GBP/USD which basically means trade of Great Britain Pound against the United States Dollar. The market is active for 24 hours a day and for 5 and a half days a week also, the forex market is separated into four trading sessions. Sydney, Tokyo, London, and New York. Basically, you can say that this market never sleeps and is indicated by a daily turnover of more than $5 trillion. Normally, each pair is given in pips (Percentage in points) to four decimal places.
There are various reasons why the currency trading market is fluctuating. At a greater pace and the reasons being variety of variables such as the economic state of the nations involved. Geopolitical risk and instability, and trade and financial movements, among others.
All trades take place Over-The- Counter (OTC) i.e., via a computer or an electronic as its global and trades takes place all around the world so it is practically impossible to have any physical or manual setup. The forex market is witnessing an upward trend in the market of investments. It is experiencing a growth in the number of traders and also there is more irregularity in the performance of other markets.
Understanding currency pairs:
A currency pair is a price quotation for the rate of exchange of two different currencies exchanged in FX markets. The first currency is called as base currency and the second is called as quote currency, for example, in case of the currency pair- GBP/USD, GBP is the base currency and USD is the quote currency. Essentially, currency pair shows how much of the quote currency is required to buy every unit of the base currency.
The eight most important currencies which forms the pairs are- the United States dollar (USD), the Euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Australian dollar (AUD), the Canadian dollar (CAD), and the Swiss franc (CHF). The major pairs which play an essential role in the market are: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD.
Minor currencies or crosses are currency pairings that are not linked with the US dollar. EUR/GBP is an example of such a minor currency pair. Currency pairings from developing markets are examples of exotic currency pairs. These pairings are less liquid, with significantly larger spreads. The USD/SGD (U.S. dollar/Singapore dollar) is an example of an exotic currency pair.
Benefits of Currency trading:
The foreign exchange trading is associated with various benefits and is also essential for individuals. To make a note of it as it will help them to determine whether it suits their ideas and the goals or not.
Some of the perks are listed below:
The market is active for 24 hours and 5 days a week:
As the market is active almost every time, it gives the users to trade according to their time suitability and convenience. It also helps them to plan their trades and have time for proper application of their ideas.
The major trading hours opens with United States and ends with New York. The market is almost open at some part in the world almost any time.
The transaction costs are really low:
In the forex market, the cost of a deal is typically included into the price as a spread. Forex brokers keep the spread as payment for completing the transaction.
Spreads are frequently low, making forex trading accessible. However, while choosing a broker, you should take into account all associated fee. Since some may charge a set fee or a variable commission.
There is high expectancy of earning profits:
It is a highly liquid market and also has potential for extreme highs and lows. The way of its working and it being a global market. It gives the option to the traders to earn maximum profits if they implement their strategies well. Also, there is no directional trading and it makes sense to earn higher profits as the currency pairs are traded well.
It is quite feasible and a good option for beginners:
Usually, the forex exchange trading brokers gives various options for to traders to learn the techniques and understand how to trade in free demo sessions. It is quite easy to enter and does not need a significant initial commitment. Which explains its appeal among amateur traders. This makes it easier for beginners.
Currency trading is one of the most global and largest investments markets in the world. There are so a lot of benefits associated with it but it is essential for the trader to know and understand the strategies well so that they can have better approach at eliminating losses.