Currency trading, often referred to as foreign exchange or Forex, is the purchasing and selling of currencies in the foreign exchange marketplace, done with the objective of making profits. It is referred to as ‘speculative Forex trading.’ The main factor that differentiates currency trading from other types of trading is its liquidity. Currency trading is usually done through brokers and market makers. Investors who trade this way depend on the brokers to place a corresponding trade on the international market. Currency trading is a 24-hour market that is only closed from Friday evening to Sunday evening, but the 24-hour trading sessions are misleading. There are three sessions that include the European, Asian and United States trading sessions. Although there is some overlap in the sessions, the main currencies in each market are traded mostly during those market hours. This means that certain currency pairs will have more volume during certain sessions.
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What is currency trading?
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Benefits of currency trading (forex):
- 24-hour market
Where most stock exchanges are open from 9am-4pm (depending on the country where they operate), the forex market hours are continuous from the start of the week on Monday morning in New Zealand until it closes on Friday afternoon New York time. That means you can trade 24 hours a day, 5 days a week, giving you more trading opportunities.
- Free education to become a successful FX trader
Forex trading is easy to learn but hard to master, so this is why many people refer to trading as a ‘journey’.
- All trading styles work
With the ability to make profit by going long and short, you can be successful using a wide range of different forex trading styles. For example, there are a number of forex trading strategies that allow traders to use technical analysis and fundamental analysis to execute trades confidently while following thorough risk management practices.
The trading style you intend to use really depends on the amount of time and effort you have available to dedicate to forex trading, as well as your end goals. But there are plenty of trading styles to trial: price action strategy, day trading, scalp trading, swing trading, and many more.
- Cost of trading is low with no commissions
To make things easier, forex brokers tend to take care of any fees associated with trading. This means you don’t end up paying for things like transfers, deposits, withdrawals, or exchange fees.
- Range of risk management tools
There’s always going to be risk when investing money into a financial market, whether that’s forex, commodities, stocks, or anything else. Proper forex risk management techniques are essential for forex traders who want to become successful in the long term.
The ability to use leverage in FX is one of the most appealing benefits of forex trading as it allows you to open a large trade position with a small initial investment.
The benefit of utilising leverage is the potential to increase your profits, but it works in the opposite way too, where it can lead to greater losses. So, when applying leverage you always need to carefully consider an appropriate level of risk.
- Profit from going ‘long’ or ‘short’
In other markets, it’s quite common for CFDs to be used for going both long and short on an instrument. In the world of forex, it’s a critical component as you’re always selling one currency to buy another.
If we think the Australian dollar is going to increase against the INR then we would buy the pair (going long). If we think the opposite is going to happen, and the Australian dollar will get weaker against the INR, then we would sell the pair (going short).
- Highly liquid market
Liquidity is a general term to describe an asset that can be bought in the market without affecting the overall price of that asset. Forex is considered to have high liquidity because the forex market is so large and there are so many people trading that it’s incredibly difficult to manipulate prices – even by someone trading very high volumes. So, liquidity is important because it keeps prices comparatively stable.
- Start with small trade sizes
In forex, when you want to open a trade you need to choose the trade size, which is referred to as a ‘lot’. Your trade size will be determined by how many lots you are going to buy or sell in the trade. Lots are calculated using your account funding currency, and the lot sizes include:
Standard lot = 100,000 units of currency
Mini lot = 10,000 units of currency
Micro lot = 1,000 units of currency
- Utilise technical analysis
The ability to read and understand charts, and utilise technical analysis, can be particularly useful in currency trading.
Buyers and sellers of currencies on the foreign exchange market determine the rates of FX instruments in real-time, while central banks maintain stability and the volatility of the currency.
No one can perfectly predict the way the market moves, but by learning some of the most common technical indicators – like support and resistance levels and Fibonacci retracement – you can identify where currency pair lows and highs are and make more informed predictions about future trends.
Asset allocation stabilities your risk and reward by allocating your assets
One place to hold your investments
Financial instrument that holds some type of monetary value
Getting the shares of a private corporation to the public in a new stock issuance
The global FX market is unique in its size, accessibility and opportunities it can offer. By taking a moment to look at how it works and the biggest advantages of forex trading, you’ll discover why this global market is so popular with people all around the world.
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