How Currency Trading Works


How Currency Trading Works

Almost everybody looking to make money online is interested in knowing how currency trading works. Well, currency trading, otherwise known as Forex, deals with the ability to sell and buy currencies online. It is the hugest financial market in the world, with a daily turnover of over $1.5 trillion.

As you may expect, the biggest players in the market are brokers, banks, financial institutions and even some private individuals. Most trades are done online, in some cases, using a high tech trading platform. However, there are still people who conduct their businesses over the phones like it has been done for decades. There is absolutely no dearth on the number of online firms who offer trading platforms and/or trading over the phone.

How currency trading works is that the trade can be between any of the market players mentioned earlier. “Interbank” is a term used when the buyers and sellers are ready to make an exchange of currency.

You should know that traders trade various currencies at different rates. Again, how currency trading works will let you know what currency plays a dominant role in the market. It is a fact that, 80% of all the currencies in world trade against the US dollars (USD). So, USD is the currency that is traded the most. It is followed by the British Pounds (GBP), Euro (EUR), Swiss Francs (CHF) and the Japanese Yen (JPY). These currencies are known as the “major currencies”. The rate that a currency is traded is referred to as “exchange rate”.

You should know about trading if you want to know how currency trading works. When you trade, you always exchange one currency for another. For example, you can buy GBP in exchange for USD or any other combination for that matter.

Your goal in mastering how currency trading works is to know which currency will go up in relation to another. In other words, if you know that the USD will go up in relation to the EUR, in a short while or in a long term, you could sell your Euros for US dollars. And when the US dollars eventually go up, you could sell it for Euros. So, you will have more Euros at the end of the day than you started out with. You would have made profit or gain by so doing.

Knowing How currency trading works will tell you that traders in the FX market might have to endure profit and loss swings of between 15% to 35% or more. This is as simple as saying you can win or lose. The main goal of a trader is to learn How currency trading works and protect themselves from every loss they can foretell. The market is open Mondays to Fridays for the whole 24 hours a day. So, you can react to any market changes so that you have the chance to get into a winning trade or get out of a losing situation.