Forex trading is now one of the ways through which a lot of people make money. It is another form of investing just like stock trading and commodities trading.
In case you do not know what forex trading is, or you heard the name somewhere and have been trying to find out more about it, this article will provide you with a brief insight into what forex trading is.
Table of Contents
What Is Forex Trading?
Forex exchange, which is also known as forex trading, refers to the buying and selling of world currencies.
Although it is normally known as forex exchange, we also call it forex trading when it is done online with computers and smartphones.
Forex trading is done over the interbank market where the world currencies are traded 24 hours in 5 days over a week.
Forex trading is also one of the largest financial markets in the world. There is an estimated daily trade volume of over $ 5 trillion. Forex connects broker firms and banks over an online network.
History
Forex trading began as a barter system hundreds of years ago where people exchanged goods with one another.
However, an accepted channel of trade was later created due to some limitations of the barter system.
Metal coins were then introduced into the system to solve that limitation. Before the start of world war 1, most banks were making it possible to convert currencies into gold.
However, this sometimes resulted in political instability due to the inflations that occurred. Due to this forex controls were set up to protect the local national interest.
The Bretton Woods agreement was then later introduced by the United States in 1944 and it led to a system of fixed exchange rates that helped re-establish the standard of gold and stabilized the US dollar as well as other currencies, thereby making it permanent.
Forex trading has then developed over the years into one of the biggest financial markets in the world. Restrictions from capital flow were put off in several countries and this resulted in the market being an independent whose rates are settled as per their perceived values.
Forex trading has popularity due to its round-the-clock trading, Low-cost trading, and available leverage.
Currency Pairs
Currency pairs refer to the two currencies that are being traded at the same time by a trader when he buys and sells a currency.
The most common currencies that are traded most of the time are the Japanese Yen, American dollar, Swiss Franc, Canadian dollar, and Australian Dollar.
Broker
A broker is a financial firm that helps you to trade forex. In today’s terms, the broker will be the Forex app that you have downloaded to trade the currency pairs.
The brokers in this case allow you to trade by using their platform. All brokers have the fees that they charge when you trade and the fees are known as the spread.
Base And Variable Currency
When trading in forex, a person trades through the use of two currency pairs. The person sells and currency and buys another and that is how the trading is done all the time.
Who Can Trade?
Almost anyone who has some knowledge about forex trading can start trading as long as the person has a computer or smartphone and an internet connection.
However, it is advisable to make sure that you exactly what you are doing before you trade forex as it is a place where you can easily lose money if you do not have the required knowledge needed to trade.
Where To Trade
Due to the advancement of technology, forex trading has become very easy. As stated earlier, you need a smartphone or computer with an internet connection.
You will also need to download a Forex app (your broker) before you can start trading since the trader is the platform where the trading will take place.
Conclusion
Before venturing into forex, it is advisable to take some classes to get yourself ready before you go into it. You should also make sure that you choose a broker that is good and has moderate charges.
Forex trading is one of the online investments available and I am glad to have given you some insight into it.
