Spread $1 bills side by side on a soccer field and cover the entire ground area. Again, spread another layer of bills over the previous layer and continue the process until the stack reaches a height more than the Statue of Liberty. With this done, the amount still will not reach the figure that foreign exchange market transacts with daily. This is probably the most lucrative and volatile financial market on earth and chances of making profits are huge. Hence, a thorough understanding of how forex market works and how to trade in it is of primary importance.
Foreign exchange market deals with international currency exchange, and trading is carried out based on the difference in currency valuation. The concept may seem simple but transacting with currencies requires proper intuition and money management along with proper knowledge of all the technicalities involved.
- How forex market works?
Every currency comes with its own valuation against another. One dollar is not same as one Euro or one Yen. Based on a country’s economy and other similar factors, a currency is given its valuation compared to some standard currency.
Again, a country’s economy is never stagnant. Currency valuation fluctuates based on its GDP, PPP, Export rates, etc. So, if Euro is rated at 1.36 against USD today, it may go up to 1.38 tomorrow. This is how the forex market works. If you buy Euros today, you will make a profit tomorrow.
- Steps to start trading
You cannot just start trading immediately. This market is electronically controlled, and there is no Central bank or Institution available regulating the same. To start trading, you must follow these simple steps.
- Get associated with a broker and open a live forex This where all your transactions will take place and all purchased currencies will be stored. Type of accounts varies based on the amount of money you want to trade with.
- You may see that investor trading with $100,000 lot size, but this is not how the forex market works. You do not need that much money to start trading. You can invest $1,000 and go for 100:1 leverage to trade with $100,000. Most veteran traders make use of this to increase profits.
- Most brokers will provide you with the option of demo accounts. These are virtual accounts that let you trade with virtual money in a simulated forex environment. These are perfect ways to understand how does the forex market works and get some practice before stepping into the real world.
There are other technicalities that you must be thorough with before considering trading in this market. The demo account or a forex tutorial may help you with the same.
Market fluctuation is not the only way to earn profit from foreign exchange market. Also, you must carry out a lot of analysis before purchasing or selling any particular currency. Find out more about how forex market works and what all advantages can you expect from your broker. Trading in a market of this size requires a lot of initial hard work.