The growing trends of trading and stock markets have increased astronomically. Everyone is intrigued by the various platforms and trading options available to explore. Forex (Foreign exchange) trading is one such market that has taken off and is popular amongst youngsters. Individuals in the age group in the late twenties to early forties are heavily investing their time and finances in currency trading forums. The turnover of these investments is also good, making them ideal for beginners.
Traditionally the forex trades are stock market investments made by financial institution traders. These people include employees of banks, MNCs (Multinational corporations) and fund managers. Today, many individuals who do not belong to these domains too are showing interest in this trading forum. They are looking at resources online to understand the terminologies and concepts of currency investments. This article will explain a few basic postulations of Forex trading. Apart from that, there will also be a section dedicated to outlining the standard methods of transaction of currencies.
The basic concepts of Forex trading for beginners:
- For first time investors who do not know the concept of Forex, it is nothing but a similar notion to currency exchange while travelling abroad. An individual buys one currency while selling the other they own. This exchange takes place between two parties willing to trade.
- The currency exchange rate frequently fluctuates, depending on the demand and supply of the commodity.
- The currency market is open for trade from Monday to Friday, twenty-four hours a day. The best part about this trading mode is its uniformity worldwide.
- All the Forex trades are made online in the OTC format (Over the Counter), without any physical money exchange.
- There is a vast global network of overseas financial institutions and banks, making the transaction and liquidity of stocks easier and effortless.
The 101 of currency transactions in the trade market – trading methods explained:
- Currency trading has a system where each one has a three-letter coding. It is very similar to the ticker symbol in stocks. Despite there being 170 plus currencies worldwide,
- The USD (United States Dollar) is the major player in terms of Forex trades. Hence, it is acceptable to understand the U.S. dollar values as it helps understand the market better.
- After the USD, EUR (Euro) is the second most popular currency in the trading market. It is accepted in nineteen countries of the EU (European Union).
- Seven currency pairs are “majors” or main accounts on the platform, occupying almost 75% of the total transactions. They are EUR/USD, NZD/USD, AUD/USD, USD/JPY, USD/CHF, GBP/USD and USD/CAD.
- In currency trading pairs, each currency represents the present rates for exchange for the respective countries.
- The currency present on the left side of the pair indicates the base currency. The currency represented on the right side is the quote currency. During initial transactions, people must watch the exchange rate to comprehend the total transaction value. The currency’s exchange rate will represent the amount of quote currency needed to purchase one unit of the base currency.
- When the market is doing well for the base currency, its exchange rate rises in value, and when the market drops, its value drops too, compared to the quoted currency.
- Traders mainly use three routes to trade currencies. They are the spot market, forward market and futures market. These three markets are famous for being accommodative to varying goals of traders. Based on their investment and returns priorities, they can put their money in the respective Forex market.
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