Currency trading, more commonly known as Forex trading, involves investing in currencies. The Forex market is the world’s most popular trading market, averaging a turnover of over $5 trillion every single day.
Despite speculation being a primary factor in currency trading, it still remains an extremely popular form of binary options trading that’s carried out by traders all over the world. Also boasting a relatively simple concept that’s easy to pick up and implement, currency trading could be a good place for new traders to start provided they have the appropriate funds behind it. It is also a good starting place for the novice trader as there are a large array of trading signals and other trading tools to help guide a Forex trader’s decisions and this will, of course, help a new trader just as readily as it helps the veterans in the marketplace.
So, if you’re a new trader looking to expand your knowledge within the market of currency (Forex) trading, or a seasoned trader wanting to refresh your memory, below you’ll find everything you need to know to establish whether currency trading is a market you want to try!
How does currency trading work?
The principle of Forex trading is very simple: traders first select a currency ‘pair’ they wish to trade in, and simultaneously sell one of the currencies whilst buying the other.
When making the decision as to which pair you want to trade with, you must first list your ‘base’ currency (the currency you’ll sell), and the second will act as your buying currency. Featuring many popular currency pairs such as USD-EUR, USD-CAD and USD-GPB, Forex trading can involve virtually any currency pair you wish. This makes it one of the most versatile types of trading, which significantly contributes to its popularity.
As the Forex market is open around the clock, 7 days a week, it’s accessible at any time no matter how busy your daily routine is. This is one of the many advantages for trades who trade within this market, and is one of the primary reasons for its popularity. If you lead a busy lifestyle and find it difficult to incorporate trading into your current lifestyle, currency trading may be a good solution for you. Here are a few more advantages to consider:
- High liquidity – Due to its worldwide popularity, the Forex market boasts the largest number of traders in comparison to any other market in the world. This results in a very high level of consistent liquidity, completely eliminating any chance of price anomalies or manipulation. Also, as different countries operate during different time zones, you’d never have to worry about sudden price fluctuations as the trading within this market is literally non-stop.
- Very versatile – The flexibility of the Forex market enables traders to trade at exactly the time and pace they want. Whilst it’s beneficial to short-term traders who tend to trade anything from a mere few minutes to a few hours, Forex trading is also highly advantageous for traders who have preference for more long-term trades lasting from days to a few weeks. Accommodating and versatile, Forex trading offers unparalleled flexibility for all traders involved.
- Offers a low capital requirement – Forex trading is easily started with a small initial capital amount, often making it an ideal option for brand new traders with little money behind them. This is possible due to the relatively stable prices present in the Forex trading market.
Whilst it’s clear there’s plenty of benefits for both new and seasoned traders in the Forex market, there’s still some potential disadvantages you should consider.
- Can be complex – It’s a commonly known fact that currency rates are affected by a huge array of factors, such as economics or politics dependent on the associated country. This means it’s often extremely difficult to establish any reliable analysis to draw potential conclusions from, which can often result in losses for traders who make wrong choices.
- High risk – Often utilizing extremely high leverage, this can both be highly advantageous or very detrimental. Whilst this can result in large profits, it can also lead to even larger losses. In fact, many brand new traders decide to quit the Forex market after only a short amount of time due to experiencing a bad run of losses.
So, if you wanted to learn more about currency trading, hopefully this has given you an insight into its fundamental principles, advantages and disadvantages, allowing you to make a 100% better informed decision as to whether this type of trading is right for you. But just in case you are still uncertain as to which venue is the right one for you, perhaps it is time to learn about another branch of the trading business called commodities trading. Learning what a commodity is and how binary trades take place in this exciting marketplace should be the next step in your binary options trading education now that you have a grasp of what Forex trading is all about.