The Basics Of How To Do Currency Trading
The Basics of Currency Trading takes you to the next step in your knowledge as it introduces you to basic forex trading terminology and benefits, what currency pairs are and how they are traded, why, when, and how all currencies are valued in terms of others, how to read basic pricing charts, what margin trading is and how it works, etc.
Currency trading is the process of exchanging one currency for another in the hope of making a profit. Each day, more than four trillion dollars are exchanged on the forex market, which makes it the world’s largest and most liquid market. Forex currencies are traded in pairs; you buy one currency when its price relative to another rises, then sell before it drops back down.
Due to its enormous size, the forex market offers unmatched liquidity and stability which is crucial for traders looking to enter and exit a position in any of the major currencies within a fraction of a second. In comparison, there is only $25 billion of daily volume on the New York Stock Exchange (NYSE). The market may be large, but until recently the volume came from professional traders, but as currency trading platforms have improved more retail traders have found forex to be suitable for their investment goals.
How Does Currency Trading Works?
Forex trading is a 24-hour market that is only closed from Friday evening to Sunday evening, but the 24-hour trading sessions are misleading. Three trading sessions include the European, Asian and U.S. trading sessions. Although there is some overlap in trading times between the various global markets, there are certain currencies that are more heavily traded when European or U.S. markets are open.
Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session. While many different currencies can be traded, a trader primarily focuses on major currencies because pairings involving these are the most liquid and have tight spreads.
Pairs and Pips
Ever wonder how and where to start trading forex? Let us break it down for you. When you trade in the forex market, you buy or sell in currency pairs. Imagine each currency pair constantly in a “tug of war” with each currency on its side of the rope. Exchange rates fluctuate based on which currency is stronger at the moment. Major Currency Pairs are the most important, most traded worldwide currency pairs available through a forex broker. They are the most liquid ones and each currency is paired with USD or one another.
As you start trading and build equity in your account, you can trade mini lots and standard lots. A full lot (or just “lot” for short) is 100,000 units of the base currency of the currency pair. This equals $10 per pip movement if your account is funded in U.S. dollars. A mini lot is 10,000 units of the base currency and a micro lot is 1,000 units.