Foreign Exchange Currency Trading Basics

Foreign exchange currency trading, in its simplest definition, is trading one countries currency for another. Though, to profit from foreign exchange trading is much more difficult given that there are far fewer people who succeed at trading than those who fail.

The foreign exchange market is open and available 24 hours a day except for Saturdays and Sundays. When it is accessible, people from all over the world can connect to the market online. This is because the foreign exchange market is decentralized, which means that it has no central location, though there is a large trading hub located in London.

Foreign exchange trades take place on all levels, from large traders such as corporations, to individuals. Individuals typically don’t have as much money as corporations, so they usually trade smaller quantities. This means they have a larger spread. The spread is the difference between the bid price and the ask price. The bid price is how much the trader is willing to spend to obtain the first currency of a pair. The ask price is how much the trader is willing to sell the first currency of a pair for.

Some of the most popular currencies that are traded are the United States, Australian, and New Zealand dollars, the Euro, the Japanese yen, and the Pound sterling. There are smaller spreads for pairs of currencies that are more popular than those for currencies of countries that aren’t as popular in the market.

Some of the factors that can affect whether a trader will profit are the size of the trade, the going rate of the pair of currencies, and the extent of the leverage. Leverage is like borrowing as people may trade more money than they actually have in hopes of profiting.

Foreign exchange trading is exchanging one country’s currency for another; however, it isn’t always successful. There are many factors that can affect the outcome.

Sources:

http://www.helium.com/items/2169401-basics-of-foreign-exchange-currency-trading

http://au.ibtimes.com/articles/110821/20110210/what-is-foreign-exchange-currency-conversion-financial-markets-forex-foreign-exchange-markets.htm


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