Currency trading basics

Foreign exchange is a global trading platform. Here, thousands of investors from the world over participate in buying, selling, exchanging currencies. Forex is quite similar to stock markets, but instead of companies dealing shares, here, countries deal with currencies. If you want to break into this system, you must internalize the currency trading basics first.

In Forex, people invest billions of dollars daily; which means numerous transactions are happening continuously. There is cut-throat competition and having a proper business plan is a lifesaver. So, you as a novice should first learn the basic building blocks of this vast and unpredictable empire.  

Down below, are a few key pointers which will help anyone improve/enhance financial profitability.

Knowing the eight major currencies:

In currency trading, investors invest in selective currencies. These few currencies belong to highly developed economies in every habitable continent. There are eight major currencies which regulate Forex, in pairs.

The currencies are;

  • United States dollar

  • Canadian Dollar

  • Great Britain Pound

  • Japanese Yen

  • Australian Dollar

  • Euro

  • Swiss Franc

  • New Zealand Dollar

Traders, buy/sell/exchange these currencies in pairs; which means sell one currency while simultaneously selling another. So, you will find four major currency pairs in foreign exchange markets.

Dependable brokerage firms:

There are numerous currency trading brokers, who offer their services to up and coming investors. People should judiciously choose their brokers, as some are more effective and dependable than others.

Before recruiting a certain institution, you must cross check some facts. For instance, that brokerage firm must register itself with Futures Commission Merchant (FCM). They must also regulate their activities under Commodity Futures Trading Commission (CFTC).

Apart from these, probable brokers should go through that firm’s website and analyze past performance charts and datasets.

Use demo accounts:

According to Forex currency trading basics, new investors must practice trading in market scenarios. But doing this activity, in the real-world scenario can result in losses, etc. This is why many amateur traders use demo accounts.

When a client opens an account with the brokerage firm, it provides that client with MetaTrader platform access. Through MetaTrader, users can avail demo account options. In demo scenarios, software programs simulate market situations. But as it is virtual, people don’t incur any real losses.

Example:- Danny is starting out with currency trading. He knows very little about Forex and hence links up with a broker like LiteForex. The brokerage firm gives Danny access to its MetaTrader software and opens a demo account. Through this demo setup, Danny will test out investment ideas and determine whether it's profitable or not.

Decode trends:

Successful Forex traders believe that trend analysis is the catalyst for profitability. If a person understands prevailing market trends that he/she can master all Forex currency trading basics. This is because current trends help traders determine strong positions and predict prospects.

A person who understands trends can easily capitalize on profitable opportunities.

Summing up, it is clear that learning currency trading basics will help any investor gain a competitive edge. So, all budding investors should double down on learning their basics first. 

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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