We’ve heard about major trading markets such as physical assets, bonds and the stock market. One kind of trading that has been become popular in South Africa is the forex market. What is forex trading, how does it work and why are investors attracted to it?
What is Forex Trading?
Forex or Foreign Exchange which is also known as FX Trading is the inter-conversion of foreign currencies. These currencies are interchanged to earn benefits on the leading currencies. The Forex industry is a big industry with an average daily trading volume of our $5 Trillion. People who understand this do business on Forex. Forex can be explained as a large network of buyers and sellers, who transfer currency between each other at an agreed price. This is the same method using which individuals and central banks convert their currencies with each other. The concept of Forex can be understood by this example that if you have ever bought a foreign flight ticket, then you have made a Forex deposit.
While most of the Foreign Currency is exchanged for practical purposes, a large amount of it is just exchanged with the aim of gaining a profit from it. Forex is a game of risk that you are willing to take. Sometimes trading on a currency makes the currency extremely volatile. The volatility at Forex is what makes it attractive for people who come to earn huge benefits or in other cases huge loss. Anything can happen so you should be willing to take the risk before you start the exchange.
How Does Forex Trading Work?
Forex trading is simple but not that simple. You have to learn the proper tricks before you can start working on it. In this type of trading, there is a pair of currencies that you work with. One currency is called the Base Currency and the other one is the Quote Currency. The base currency is the currency you purchase when you start the trading and the quote currency is the one against which you trade your base currency. Now if the base currency falls against the quote currency you go into loss and if the base currency gets higher against the quote currency then you can earn a lot of profit on your trading. In this trading, the loss and the profit both are very big and sometimes you cannot just judge what will happen.
What Currencies Can You Trade?
Forex trading can involve all currencies that you want to trade but to avoid any problems many providers have selected some categories and paired them into the following groups:
- Major pairs:
About 80% of global forex trading is made up of seven currencies Including EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD. These are called the Major Pairs.
- Minor pairs:
These pairs are less frequently traded. These often feature other major currencies against each other instead of the US dollar. These are called Minor Pairs including EUR/GBP, EUR/CHF, and GBP/JPY.
In this, we put a major currency against one from a small or emerging economy. These pairs include USD/PLN, GBP/MXN, and EUR/CZK.
- Regional Pairs:
These include pairs classified by region. These pairs include EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian dollar vs New Zealand dollar) and AUD/SGD.
What Are The Risks Of Forex Trading?
Forex trading has some risks as you cannot always be sure about the prices of the currencies. There is always a risk whenever you spend your money in forex trading. The risks are if the price goes down, you will lose your money in no time and sometimes the loss is more than your base currency. When working in forex trading always try to work with a currency that you are sure will benefit you or the risks are well-known to you so don’t fall for the wrong pairs and you will stay out of the danger zone.
What Do The Forex Brokers Do?
Like all other brokers, forex brokers are associated with the inter-banks and work to provide you with the proper help that you require while trading forex. These brokers bring the best services to you and help you trade perfectly on the network. Finding the right broker is the most necessary thing that you have to do. If you find a good broker who knows on which currency to spend, only then can you be able to have the best trading experience with Forex so try finding a trusted broker.
How Can One Start Working?
You might be thinking about investing some amount of your money in this trading now. It could be quite a beneficial task. I have told you all the procedures, how it works, and whom to contact for this work. Now if you want to get started in forex trading, there are many online networks that can help you with that. There are many websites where you can start trading currencies and earn benefits. Find a trusted website and start investing money now. Also, keep in mind the risks and best of luck with your trading.