Top 7 Questions About Currency Trading Answered

The forex business can be confusing to many beginners. The financial market has many branches which include the stocks market and the forex market. Many people confuse the two or even tend to assume the same thing. The forex market is simply about trading currency and nothing else. In order to understand the forex basics (formation forex), a good compilation of the commonly raised issues is necessary. Here are the top 7 questions that most people ask alongside the appropriate answers.

What is currency trading?

Currency trading, also known as foreign exchange, is the business of buying or selling currencies with the aim of making a profit. There is a constant difference that exists between the exchange rates of two currencies. Traders manipulate this discrepancy to make money. In general, currency rates change from time to time and with proper timing, profits can accrue from exchanging currency.

What do I need to engage in the trade?

You simply need to create a forex account and sign up with a broker. The broker is your link to the market and helps manage your accounts. The broker makes the trade according to your directives and earns a small commission for this service. Brokers are usually institutions who have a direct link to entities that want their currency exchanged.

Is forex trading risky?

Yes. Forex trading has business risks like any other commercial activity. The risks involved in currency trading include transaction risks, leverage risks, and interest rate risks among others. All these risks basically pose a threat to a trader’s accounts. If not properly managed, the risks can lead to huge financial losses.

Which currencies can I trade in the forex market?

In general, most currencies can be sold or bought. There are, however, some that are considered to be the major currencies in the market. They include:

• USD
• JPY
• EUR
• GBP
• CHF

Currency pairs made with any of these currencies can be great for trading in the market. In general, a forex trader needs to have a minimum of two currencies in order to trade.

When does the forex market open and close?

Currency exchange never stops and the forex market runs for 24 hours every day. The trade is international and only time differences around the globe mark the beginning and end of a trading day. The market forces that influence the trade are also global and can be observed on a real-time basis.

How expensive is forex trading?

Currency trading is a fairly inexpensive business. Since there are brokers in the market, day traders do not need to have huge sums in order to trade. Brokers can give traders leverage in the ratio of 100:1. This means that a small investment is capable of launching a trader into the business.

What is the difference between forex and other markets?

First, the forex market exists arbitrarily without the regulation of any particular institutions. For this reason, traders are solely responsible for their trading activities. Secondly, the forex business has no real commodities. The exchange is only based on currency discrepancies and not a specific commodity. The profits accrued are akin to an interest rather than a profit.

The above questions are some of the most commonly asked by new and budding traders. There are many more aspects about the forex market but the answers above are sufficient for getting you started.

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