An Introduction To Trading Currencies
If you have ever traveled overseas and exchanged dollars into another currency, you have participated in a small way in the forex market. The forex market is the trading of currencies on a much larger and more complex scale, with the goal of making a profit. It can be extremely lucrative, although it is also potentially risky and to be successful in trading currencies, you need to have a good grasp of world economics, politics and current affairs. On a daily basis, around $1.5 trillion worth of currency is traded around the world, much of it by large banks and brokerages, but some of it by individual traders.
Most currency trading is typically done through a broker, and the goal is to buy currency at a low price, and then hold onto it until you can sell it to make a profit. For example, if you purchased 1,000 Euros at a cost af $1250 and then the value of the Dollar increased, meaning that you could sell your Euros for $1400, you would make a profit of $150. The difficult part of fx trading is to be able to predict with some certainty whether the value of a currency will go up or down. The value of a currency can fluctuate many times within the course of just a single day, based on various factors.
Although you can trade many different currencies, one of the most widely traded currency pairs is the Euro / Dollar. The currency pair is said to go up if the Euro is worth more in Dollars; if the Euro is worth less, then the pair is going down. A good strategy would be to buy the Euro / Dollar pair if you felt that the Dollar was going to decrease in value against the Euro; if you were convinced that the Dollar was going to increase in value, a better approach would be to sell the pair. Of course, being able to accurately predict what currency rates will do is the challenging part of currency trading.
If you are interested in trading currencies, you should do your research and find out as much about it as possible. You will also have to choose a broker to handle your transactions, and finding a reputable broker that you feel comfortable with is important. Many brokers will offer a 30 day trial period during which you make 'pretend' trades and generally get a feel for the system and how it all works. It is also recommended that you become familiar with charts, which analyze trends and patterns, and can help you to make more informed choices.
by: Cedric Welsch