Learn the basics of FX Exchange And Forex Trading

Recently, the world of FX exchange is dominating the news headlines and the Foreign exchange currency is on roller coaster ride with the recording breaking highs and lows. If you are new to this field you might be thinking what does FX trading mean and what is Forex exchange rate and more details. So here are some of important basic things you need to know about the Foreign exchange market.

What is FX exchange?

It is a common day to day observation that the foreign currencies go up and down every day making the headlines of the newspapers. What people are not able to realize that they can make substantial profits from the movement of the currencies in the Foreign exchange (Forex) market. There are people who make millions of dollars in a single day because of the movement of the FX Exchange market. As the technologies have become more and more better, the Forex market has become more and more accessible resulting in a big growth of the online FX trading. And a reliable Forex broker is the person or a firm which provides access to the trading platforms that help in selling and buying the currencies.


Forex trading benefits

The FX exchange market is the biggest financial market in the world. The average trading volume is more than $3.2 million. The Forex market is relatively stable and because there are so many buyers and sellers, the transaction prices are kept low. There are a few important benefits of FX trading vs stock trading.

  1. The trading is done 24 hours and you can mention when to trade and how to do trading.
  2. Leveraging is possible but this magnifies your gains and losses.
  3. You have a limited choice of currencies and not a big range of selection like stock markets.
  4. You don’t need to have a lot of money to get started. It is easy and needs less money as much less as a few hundred dollars.

How is Forex Trading done?

The mechanism of FX exchange trading is virtually similar to other market trading. The only main difference is that you are buying one currency and selling another simultaneously. This is the reason why the Foreign exchange currencies are traded in pairs like EUR/USD or USD/CAD etc. The Forex exchange rate is the purchase price between the two currencies.

Let us understand this by an example-

Take the pair USD/JPY. It represents the number of JPY a USD can buy. If you think that the USD will increase in the value against JPY then you buy more USD with JPY. If the exchange rate raises actually then you sell USDs back and you make good profits depending on the number of USDs you have. But if this does not happen you wait until the rate rises high in the future to gain the profits.

But you need to keep in mind that the Forex trading involves high risks of loss too. Therefore be prepared for the risks and play with intelligence after gaining some good experience.