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Currency trading or FX trading is a method of making money from currency rate movements. Forex traders buy and sell world currencies based on whether a currency appears likely to rise or fall.
Who Can Do FX Trading?
When you first find out about forex trading you might think that you have to know a lot about economics, politics or finance. You might think that most forex traders would be employed on Wall Street or other financial centers around the world. However, this is not true in any way.
In the past, it was definitely the situation that the forex markets used to be almost completely dominated by banks and investment companies. Nowadays, however, all of that has changed. There are two main reasons for this.
The first is the internet, which enables any person with a high speed connection to gain access to current rates, charts and other data. People can trade from home, connecting to their broker and managing their account online in real time. Brokers have seen the chance and reduced the amount of money you need to get started, encouraging people to start trading with just a few hundred dollars.
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FX trading is also called forex, foreign exchange or currency trading. So what is that exactly? Well, it is a kind of speculative investment a little like stock trading, but instead of buying and selling stocks and making a profit when they rise, FX trading involves buying and selling foreign currencies on the internet.
Like all speculative trading this is a risky type of investment but it can also be very profitable. Professional traders can make a lot of money in just a few hours per day. However, you do not have to be a professional to get involved.
Currency trading is a worldwide market without a fixed trading floor. This means that it goes on in all time zones and trading takes place 24 hours a day during the business week. This has some advantages for anyone wanting to get involved from home, because it means that you can trade at any time of day or night that is convenient for you.
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Forex, foreign exchange and fx trading are all different names for currency trading, where one currency is exchanged for another in the hope of making money when the exchange rates change. These rates are constantly changing due to market news, national events or a knock on effect from changes in the stock exchange.
At the most basic level, imagine you exchanged some US dollars for British pounds. You might give $100 to buy £65. Then the rate changes in your favor so you exchange them back again. Now with the new rate you get $102 for your £65. You just made $2 or 2% of your investment.
Currency traders do this kind of thing all of the time with the aim of increasing their funds through many small trades. They trade on margins so that they can control larger amounts with only a small investment. In the above example, you might only have to hold $10 in your brokerage account to make the purchase even though the amount is $100. The broker covers the rest on the assumption that the market is unlikely to change by more than 10% in a short time.
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