Forex Currency Trading

The forex currency trading is the foreign exchange or currency exchange market. The values of different currencies rise and fall in relationship to other countries monetary units. That change is what Forex traders hope to monopolize and capitalize on. There is normal daily fluctuation in exchange rates, even multiple times daily. If you’ve ever traveled outside the country, for example, even to Canada or Mexico, you notice that the currency exchange varies from morning to afternoon and daily. This fluctuation is what forex currency traders try to capture.

In the forex trade, there are two different types of currency used. Even though you may be American, the money in your account may be yen and you want to exchange it for Euros. You don’t have to stay within your own country, you just need a second form of monetary exchange. Quotes show in pairs also. EUR/USD shows two currencies. The first is the base currency with the second the counter currency. If you choose a buy for the combination, you trade USD (United States dollars) for Euros. You believe the Euro is growing faster than the dollar, or the dollar is dropping in relationship to the Euro.

Forex currency trading used to be isolated to the very rich, governments, multinational corporations and central banks. Today more and more individuals and private investors trade currency. The average daily trade of US currency is over 4 trillion dollars and growing daily.

Although forex currency trading is different in many ways from stock trading, they do have some of the same characteristics. For instance, the way brokers are paid is similar to the NASDAQ. The spread is used. The spread is a price differential on both buy and sell transactions.

Unlike exchanges on the stock exchange, both sides of the position must close before the currency is available to make another trade. There is no actual delivery like the stock exchange but conversion takes place through banks and specific exchange organizations.

You also can buy on margin, just like in the stock market. The difference is the amount that the account needs to hold. Margin purchases in the stock market require 50 per cent of the account balance. Instead, it more closely resembles the margin of the commodities, which is between 1-10 percent. The margin in a forex account is 1 per cent. This is the actual amount that you deposit to make trades. If you put $1,000 into the account, you’d have $100,000 worth of buying power in the account.

There are the normal charting tools to use for forex currency trading. The biggest difference is that you need to know about both types of currencies, as opposed to just the stock of one company. Daily events and news from the different countries change the values of the currency. This is similar what happens to stock, except, you’re not talking about just one company, where, unless some outrageous scandal happens or earnings announcements occur, there’s seldom news. Every day countries have news stories that have the potential to raise or reduce the value of the currency.