Trading in any investment market is tough for beginners. Because most people tend to lose money initially; however, if you have the right education, experience, and practice, you will find success. The same goes for currency trading. Currency trading, often known as foreign currency trade or forex (FX). It is the largest investment market in the world so far. Forex always continues to grow annually. The foreign exchange market is a global decentralized or, in simple words, over-the-counter market. What this market does is, determines foreign exchange rates for every currency. Forex includes buying, selling, and exchanging currencies at a current or fixed price. Noticed a 40% increase in daily forex trading volume over the last decade. According to the bond research film LearnBonds, the daily turnover in the global foreign exchange market has hit around $6.6 trillion that too with a 40% increase in a daily forex volume over the last decade. The daily forex turnover drops nearly 6% to $1.65 trillion every year. It is believed that the foreign exchange market is the largest financial market in the world. It is larger than the stock market. According to the 2019 Triennial Central Bank Survey of FX and OTC derivatives markets, the daily volume of the forex market is $6.6 trillion.
WHAT IS CURRENCY TRADING?
Currency trading is buying and selling currency pairs in the foreign exchange market at a certain exchange rate. The foreign exchange market, which we know as forex, is one of the largest and the most liquid markets in the world today and that too, reaching a $6.6 trillion daily turnover in 2020. People who travel a lot internationally are most engaged in currency trading. For example, if you travel from The United States to Canada, you will have to exchange your American dollars. You will then use American dollars to buy Canadian dollars. The rates of foreign exchange keep changing. So, depending on the foreign exchange rate at that specific time, you will be able to buy 1.26 Canadian dollars (CAD) in exchange for USD 1.00. Of course, this exchange rate fluctuates constantly. This is what currency trading as an investment comes in.
HOW DOES THE CURRENCY TRADING WORK?
The currency trading we know as the Forex market or foreign currency trading market is a 24-hour market that is only closed from Friday evening to Sunday evening. There are generally three sessions that include the European, Asian, and United States trading sessions. However, there is some overlap in the sessions, the main currencies that each market trades mostly during the market hours. That means that specific currency pairs will have more volume during certain sessions. The traders will find the most volume in the U.S. trading session if they stay with pairs based on the dollar. If you are doing currency trading, obviously, you will have to do it on the foreign currency market, which is the Forex market. For example, you exchange one country’s currency to buy the currency of another country. You buy and then sell currency based on the direction you want. That is the direction you think each currency will relate to one another.
WHAT DO YOU NEED TO BE CAREFUL ABOUT IF YOU ARE TRADING CURRENCY?
No matter how large the market forex is, it has some cons too. There are some considerable risks attached to trading currencies. I cannot stress enough that you should educate yourself before trading currency. It would be best if you never held off on your real money until you have a firm grasp of how the currency trading industry works. This market can be very fluid and often volatile. So, you have to be cautious about it. Here are a few things to look out for if you consider currency trading.
NON- UNIFORM QUOTING CONVENTIONS
The currency pair(USD/CAD) means one U.S. dollar purchases a certain amount of Canadian dollars. But many currencies are quoted against USD, so there is no certain worldwide convention spelling out how the currency pairs are named. For example, may name the currency pairs of U.S. dollars with the euro in reverse (EUR/USD). It means a specific amount of U.S. dollars can be purchased by one euro. So pay attention to how the pairs are quoted and what a movement in a quote means for your currency trading.
THE COST OF THE TRANSACTION
In the forex market, some costs are associated with trading, just like the stock market. It’s on the dealer to decide how much the dealer wants to charge with a few surrounding commissions. Some of the forex dealers charge per trade, some of them charge through a wider bid-ask spread, and some charge both. If you are frequently trading, commission-free trades may attract some costs, and those can add up.
BEWARE OF FRAUD
Always be cautious because the more assets you have, the more you will attract the fraudsters. So, you need to be aware of forex trading scams. If you find or get an offer that is topo perfect and profitable for you to be true, watch out because it can trap the scammers. Always do a background check and some researches to be sure about the accuracy of the company.
A currency trader uses the currency of one country6 to buy the currency of the other country. In this industry, you will have profit if you have purchased the best and profitable currency in a currency pair. You have to be aware of the risks that currency trading has—especially the common practice of leverage to enhance the potential gains. Learning about currency trading is very important. But finding the perfect strategy that is beneficial for you is a little bit difficult. But, the more you research, the more you will learn, the better your strategy will be. So, educate yourself before you start currency trading or join the foreign currency exchanging market.