Getting To Know The Basics Of Forex Trading

05 Apr Getting To Know The Basics Of Forex Trading

Forex trading is one of the most sought trading in the market. Forex is known to be Foreign Exchange. Learning the market is not something that can be easily done in a day or two. It requires continuous attention, concentration and trick to get success in the trading. This is the similar strategy that one follows in forex trading too. There are many who feel that forex is the toughest type of trading category which is hard to succeed. Though, it is not so. It is one of the easiest and profitable market technique adopted by many businessmen. However, one must know the basics of forex trading to avoid any risk or loss.

What is Forex Trading?

Forex involves trading in the foreign exchange market. These are done mostly by investors and speculators. In order to understand forex, you must know the basics of trading. Forex is also known to be FX. It is stated by the forex website that the daily turnover comes majorly from two sources. They are through foreign trade and the next one is through speculators. Let us take an example where there involves two currencies – Euro and US dollar. Forex trading is where one sells the US dollars and in a simultaneous manner buys the Euros for trading. Brokers can help the trader to understand the currency pairs.

Why Forex Trading?

What makes people get attracted to forex trading among many ways to make profit? Generally forex trading involves two main terms known as foreign currency and exchange rate. Foreign exchange is what we discussed above where the exchange of currency takes place. The exchange rate is defined as the rate at which one currency is exchanged with another. Thus, to put it in simple terms, forex is the place where free trade between various currencies is exchanged.

So, now coming to an important discussion on what is the need for forex trading and why it is being preferred by many types of traders, here are some benefits. The below illustrates the benefits that help us understand the benefits of forex trading in a better manner.

Absence of Middleman

This is one of the important advantages of forex trading. Having a middleman can have some disadvantages. Though brokers are common in forextrading, it is not a compulsion to deal with brokers. If you are aware and familiar with the forex terms, then you can straight away do the dealing instead of depending on brokers. By this, your brokerage cost and commission is also reduced.

No Barriers in Time

Unlike the stock market where you have to greatly depend on the ringing bell for opening and closing of trade, forex trading is not fixed to timing. It can be done in any 24 hours without any fixing time for trading. This is considered as one of the greatest advantages. It gives flexible timing to the traders and helps in yielding a higher profit.

Limited Risk

Unlike the stock markets and other type of trading, the risk involved in forex trading is minimal. Since there is price certainty in terms of forex trading, it can be executed under normal market conditions.

Terms in Forex Trading

The next important thing one must be aware of forex trading is the terms involved in it. Some of the basic terms involved in forex trading are explained below.

Foreign Exchange Reserves – This is the basic thing many people use when trading in forex. This is defined as the holdings that one has towards other country’s currencies.

Currency Pairs – The buying of one currency in exchange for simultaneous selling of another currency is generally termed as the currency pair. This is the key to the forex trading.

PIP – PIP is abbreviated for Percentage In Point. It is known as the smallest measure of change that can happen in forex trading. A small change in exchange rate can cause PIP.

Bid – The price at which the broker agrees to buy a currency pair.

Short Sale – This is simply conversed as short where it involves selling of currency pair derivative before one buys it.


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Tips of forex Trading

After you understand forex trading terms, you should understand some of the tips for a successful forex trading. Choose a broker you are comfortable with. If you go for direct trading, it is considered as the best option when you are familiar with forex. It is also a best practice to keep track of the trading details on record for future analysis and decision making.

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