Trading on any financial markets involves real money. So before going into the how’s and why answers to “what is forex trading” should be understood especially by beginner traders.
Forex trading or forex is buying and selling of currencies. It is considered one of the fastest-growing markets in the world. Forex trading is much like stock trading in which the trader should buy low and sell high. Forex can be traded online 24 hours a day, 5 days a week. A trader can buy and sell at any time in bull markets and in bear markets. With an average turnover of US$5 trillion-plus per day, forex is the world’s traded market.
Forex trading is a simultaneous buying of one currency while selling the other in which the primary purpose of speculation. Due to several factors such as economics and geopolitics, currency values increase (appreciate) and decrease (depreciate) against each other. The main objective of the forex traders is to profit from changes in the value of one currency against another through actively speculating on what will be the move of forex prices in the future.
This will not stop knowing “what is forex trading”. Key advantages play a role in choosing forex trading over the other. The following are the reasons why many people are choosing this market:
Lot sizes are not fixed
Exchanges determined the lot or contract sizes in the futures markets. A standard-size contract for silver futures is worth 5000 ounces. The trader determines the lot or position size when it comes to spot forex. With this, traders can participate with accounts as small as $25.
Most retailers earn from their services by “bid/ask spread”. Therefore, there are no clearing fees, exchange fees, government fees and brokerage fees.
Spot currency trading enables the traders to trade directly with the market that is dealing for the pricing on a certain currency pair, eliminating the middleman.
Retail transaction cost (bid/ask spread) is usually less than 0.1% under normal market conditions. The spread could be as low as 0.07% at larger dealers which is also depending on the leverage.
Forex market never sleeps. There is no opening or closing time. This is very ideal for those who want to trade on a part-time basis since the time is up to the trader.
No one can control the market
The forex market is so huge and has a big number of participants that no single entity (even a central bank) can control the market price for a long period of time.
Forex trading allows the small deposit to control a bigger full contract value. Leverage allows the traders to make nice profits and keep risk capital to a minimum as well.
A forex broker offers 50:1 leverage which means that a $50 dollar margin deposit can allow the trader to buy or sell currencies worth $2,500. Likely, $25,000 can be traded with just $500 and so on. But before using this, remember that leverage is a double-edged sword. A high degree of leverage can lead to big losses as well as gains.
The forex market is extremely liquid due to its large size. It is an advantage because this means that under normal market conditions, it is easier to buy and sell as there will usually be someone in the market who can do the other side of the trade. Online trading platforms can be even set to automatically close a position if the desired profit (limit order) has been achieved, and/or close the trade if it is moving against the trader (stop-loss order).