Currency trading, in its simplest meaning, is defined the process of exchanging a certain currency for another. Just like in visiting other places/countries, what you do is you trade your own currency for the currency of that country you’re visiting. But when people talk about currency trading on the forex market, the meaning of the word becomes different… as it is now defined as a process of constant exchange of one currency for another (buying currencies and then selling the other currencies), making it a point to earn profits when the exchange rates will undergo changes. Currency trading is somewhat like trading stocks on the stock market, wherein the stock traders buy and sell stocks a lot faster compared to the personal average investor who takes the advice if his/her broker but in a lot of times, keep stocks for years or decades.
How does currency trading work. Let’s cite an example. For instance, the present rate on the British pound to euro forex market is GBP/EUR 1.1200, which means that in order for you to buy or purchase one pound, you need to have 1.12 euros. Now, if you predicted that the euro was going to have a higher price compared to the value of the pound, then you might sell 100,000 pounds, by 100,000 euros, and await. Come a few days later, and the exchange rate moved to GBP/EUR 1.0600… which means that the pound is worth 1.06 euros only. So if you’d sell your euros and then buy back $100,000, you will then be able to make a profit of around 6% of the original investment, less any kind of fees. Now, this will sound a big amount of cash. Who now has 100,000 pounds (or dollars) in the bank to have it trade with? Nobody! buy brics money But you don’t have to have all of those money for real. What happens is that you’re buying and at the same time selling as well, so what you need to have with you is enough amount to cover any losses if your prediction was wrong and the currency you purchased started to drop in value… after which your broker is going to be the one that loans the rest.
This is “trading margins”. So the margin on a $100,000 trade is around 1% ($1,000) or 2% ($2,000)… which is the amount of money you should have in your own forex brokerage account. The “lots”, which a single one would be worth $10,000 or more (depending on the currency and the broker as well), will be the ones to determine the amount that you’re going to trade, so if you want to trade $10,000 you would trade 1 lot, $20,000 for two, etc. To avoid margin calls, there are now a limited number of risk accounts, where the trader only risks the cash he/she has on account with his/her broker. This will be done through getting smaller players to trade in the forex marketing by the use of fractions of a lot, or what we call “mini lots” (i.e. you can trade $1,000 by trading 0.10 of a lot). This one will minimize the risk, but on the other hand, may cost much more to trade it.
Today, a lot of ordinary people are getting involved in currency trading. It gives you a number of advantages over the stock market, and even if you have no idea of the values that the different currencies have, you can always have your own forex robot, which is a kind of software that will be the one to trade for you in accordance to your own chosen settings. Remember, currency trading is a risky business, money comes and money goes. Now, knowing these facts in this article, I’m sure you now have an idea of whether or not you still want to go for the next step that you need to take into becoming a real currency trader in the forex market!