The term Trading is deeply related to the business. A person who is involved in business is called the trader or a businessman. The act of trading is to buy and sell a product or service, intending to earn a satisfying profit. The amount of profit which should be used for a living and to enlarge the business as well. The more profit a businessman earns from his deals, the more chances he/she gets to widen his/her business figure.
While every business involves risk, there are many business platforms which possess the worth of our effort and risks we take. One of the most profitable business in the world is Foreign Exchange Trading. Matter of fact, Foreign Exchange Trading is the largest trading market in the current world, and it will remain the same for decades to come.
What is Forex Trading?
Foreign Exchange, widely known as “FX” or “Forex” is word’s biggest trading market where currencies of various countries are sold, bought, or exchanged for an agreed price rate on the OTC (Over-The-Counter). The total market trading value of each day can be counted as $5.3 trillion USD. This is the biggest market platform where an individual or a company participates in pursuance to earn a huge amount of profit.
In the Forex, a participant individual or company predicts the value of one currency will fall/rise against another based on various factors; and makes their move to sell, buy or exchange currencies for an accepted price. Forex lets each of participants to earn a larger amount of profit without investing any huge one.
The major participants of the Foreign Exchange Trading are the Large International Banks and other bigger financial companies. The trading of foreign currencies is anchored by various Financial centers located in different countries around the world. The currency value of one country rises or falls against another due to various factors like Geopolitics, Economics, etc.
The downfall of a currency value against any other is called depreciate, and the rise of a currency is called appreciate. The main objective of FX traders is to make profit speculating the changes in currency values and predicting the future value of a particular currency against certain other.
The Over-the-Counter Forex market has no physical site like most of the financial market do. The Forex trading business is run 24X7 of time via a global business network where individuals and banks are involved. Various business opportunities are offered through Forex as the currency prices are being fluctuated constantly against each other every day.
24X7 Foreign Exchange Trading:
The Forex trading is open for 24X7 (Sunday to Friday) except the Saturdays. The business hour starts from 22.00 GMT (Australia, Sidney) on Sunday and ends at 22.00 GMT of Friday (USA, New York).
Such time mapping of business hour ensures the less price gapping and lets the traders make their move whenever they wish without worrying about time.
Gearing or Leverage:
Forex is a geared or Leveraged product. This allows you to take your position on the certain trading with a small aspect of your total investment amount. The potential of your profit and loss from your initial capital charge is notably bigger than the traditional business.
Pricing in Forex:
As it is cleared in the early paragraphs that the Forex runs in terms of currencies one against another. In the each pair of currencies, there is a base currency which is placed on the left, and the counter currency which is on the right.
As an Example, in the pair of Rupee/USD, Rupee is considered as the Base currency, meanwhile USD is the Counter currency. The price movements in Forex are cause to function by either the currencies appreciating or strengthening in value or depreciating.
If the Rupee/USD price is about to fall, it indicates the appreciation of the Counter currency (USD), while the Base currency Rupee has depreciated. You may make your move to buy a pair of currency if you expect that the base curency will rise or appreciate against its Counter currency.
Smilarly, if your calculation shows that the base currency will be falling or depreciating against its Counter currency, you may sell the currency pair.
Percentage in Points or Pips:
The number of value used in the Foreig Echange market is called as the Pip. One pip is counted as 0.0001, and two pips as 0.0002. The currency pairs are estimated in 5 decimals number of places. The changes from its 4th place is called as a PIP.
The pips in a currency pair are calculated by substracting the changes of number in each decimal place. If the points in Rupee/USD changes from 1.22700 to 1.22820, it is calculated and claimed as the pips have risen by 12 points (82-70).
Spread of Currency Pair:
The difference between buy price nad the sell price in the Forex is called as Spread. The buy price is also known as BID and the sell price is ASK. In broad, the difference between the amount (BID) a market maker pays to buy a currency and the amount (ASK) he/she receives to sell is called as Spread.
Intersting Factors of Forex:
The prices in Forex are regularly influenced by a large number of various factors that include Investment flows or International trade to political or economical conditions. These are the factors which make the Forex trading much of exciting and interesting.
The high volume of market activity indicates the rapid price changes because of short-term events and vital news. This price changes in Forex trading creates various opportunities for trading to the Forex retail traders.
Various major factors that influences the prices in Forex are as follows:
- Economical and Political Stability
- Financial Policy
- Currency Intercession
- Various Natural disasters like Tsunami, Earthquake, etc.
In the End:
Making a huge amount of profit with a less investment amount is easy in Foreign exchange if you can take the right move on the right time. A perfect prediction from a sufficient knowledge about Forex and current affairs can make a lot difference in our today and tomorrow; if you manage to trigger the right bullet. The Forex trade is online, what’s your move?