Even if you don’t think you are a trader in the currency market, think again. When you go on holiday and exchange currencies you are in actual fact participating in one of the largest markets in the world. The currency exchange market is the best of them all and even though it is of overwhelming size, the concepts are simple to understand. Take a look below and what we have gathered to help you understand the basics of currency exchange in the Forex market.
The Eight Majors
The currency market is unlike the stock market. Within the stock market you have thousands of assets to choose from but with the forex market there is really only eight currencies and eight economies which you need to keep an eye on. The following countries make up eight of the major currency groups which are the most popular and the most traded within the market.
United States
Eurozone
Japan
United Kingdom
Switzerland
Canada
Australia
New Zealand
These countries have the largest and fast moving economies in the world. These are known as credit worthy economies and ones which you should look into trading with when trading in the currency market. Daily reports on these eight majors are updated regularly all over the internet and on the television.
Return and Yield Basics
To understand currency trading you need to understand that all you are doing is buying one currency and selling another. All forex trading is done in pairs. For example if the USD is quotes at 1.35000 and you are trading with the USD/EUR then this means you are getting $1.35 to every euro. There is one key to remember here and that is that yield drives return.
Leverage
Although this can seem complicated when beginning to trade on the currency market it is as simple as this. The Forex market offers the highest leverage out of all the financial markets across the globe. The leverage could be 100:1 for example meaning that you can trade ten thousands worth of capital with only an investment of one hundred dollars. Keep in mind that as much money as you think you can earn you can also lose just as much, money which you might not even have. Although there is a lot of pluses to trading with leverage there is also a large risk that you could go under quite rapidly if not careful with your strategy.
Although saying this many forex dealers have softwares that can link up with a traders account which will watch your account 24 hours a day. There is a margin tool which will stop any trades from happening if your account goes into a certain minus level.
Understanding Interest Rates
It is important that as a trader you understand interest rates and where they are going in the market. To be able to understand interest you must be able to understand the underlying economy within each major country. The general rule is that countries with a strong growth rate, solid market and that perform well will most likely raise interest.
Where do I start?
To be able to get a full grasp on the market and the currency terms and phrases read up on the subject to a depth that gives you as a trader a better understanding. Don’t be afraid to hire a mentor to help you get stuck in and use platforms like CMC markets who offer one of the best trading services out there online today.
Make sure you understand how to carry trades and how to complete successful trades as well. It is not just a case of buying and selling when you a profit being made. There are strategies and methods which traders can use to increase their success rates. Don’t get downhearted when you make a loss but learn from it, note what went wrong and continue.
Trading is a profession and is a skill which takes time to build up. Ask friends and families who have experience with trading, they might be able to offer you some priceless advice. Watch the economies and keep your eye on the currency market at all times to get the best out of your trades.