Understanding the Concept of Currency Trading

Forex trading has been the talk of the town for so many years. But what is really currency trading? How can a trader gain profits from it? To say it simply, Forex trading is the trade of one currency into another. The difference in their conversion rate is the profit that the trader gets at the end of every trade. It is also referred to as foreign exchange trading and its popularity is going strong over the past few years. The constant demand of a certain currency pushes its value up or it goes down too. Therefore, it is best if you can keep an eye on the rate of these currency pairs if you really wish to succeed in this industry.

Every day, there are about $6.6 trillion transactions going around the market that is being participated by corporations, banks, and individuals who want to take advantage of the price movements. As one of the most liquid markets in the world, a lot of people gains interest in it and wanted to join especially since the initial capital needed is much lower than other means of investments that we have nowadays. Even though it is quite easy to join this industry, it is important to know and understand some of its most used terms and how each trade is made.

Key Terms

Before you start trading, you must understand some key terms in the currency market. These key terms are being used from time to time and could guide you in your journey to Forex trading. Get yourself familiarize with these terms;

Base currency – it is the amount that you want to either buy or sell.

Quote Currency – this is the profit that you will be getting after the end of the trade. If the trade is not the way you expected it to be then this is the amount that you will pay. The base currency and the quote currency is what ma

Major currencies – these are the currencies that are mostly traded in the Forex market. These currencies mostly include U.S. dollars such as EUR/USD, USD/JPY, USD/CAD, AUD/USD, NZD/USD, GBP/USD, and USD/CHF.

How To Trade in the Currency Market

When you trade in the currency market, the trades always go in pairs, and transactions are made over-the-counter. There is no central exchange that mandates and regulates the transaction in the market. The market will also be the one to tell the amount that you will need to buy a specific currency against the other one. There are corresponding codes in every currency and you must know each one of them before you start currency trading.

If you choose to buy a currency pair then this means that you expect its price to go up which in turn will strengthen the value of the base currency. If you decide to sell a currency pair, then this means that you are expecting its value to fall down which suggests that the base currency will weaken against the quoted currency.

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