Currency trading is quite easy to learn about compared to share trading. The stock exchange is controlled by a central body, whereas currency trading is not, and this means no options or futures on the trading in this market. Similarly, no arbitration panel to handle disputes, and no clearing houses to guarantee trades. Trades in the currency market are carried out by credit agreement between trader and broker.
Currency trading is now the world’s largest market, with an estimated two trillion US dollars traded daily. You might find this difficult to understand if you are used to shares trading, but with a little practice the currency trading market works very well.
Stock exchange earnings are around fifty billion US dollars a day, so you can see that currency trading is larger than all other equity markets in the world together.
How does it work?
Quite simply, the currency trading market is buying and selling different currencies, usually in large amounts. The idea is to capitalize on shifts in relative currency values, and thus make a sizable profit. Every world currency has its value compared to other currencies, and if you are sufficiently well informed in these matters on a regular and timely basis, you can put this information to good use.
The first thing to learn about currency trading is the basic way that it works. If you don’t master the basics, you could get lost and make no profit. You need to understand how the buying and selling of world currencies works, before you start to carry out your own trades.
Which currencies are traded?
There are seven pairs of world currencies that are usually traded, although others can be traded as well. The four major pairs are as follows:
US dollar – British pound USD/GBP
US dollar – Euro USD/EUR
US dollar – Swiss franc USD/CHF
US dollar – Japanese yen USD/JPY
The remaining three pairs which are usually traded are these:
US dollar – Canadian dollar USD/CAD
US dollar – Australian dollar USD/AUD
US dollar – New Zealand dollar USD/NZD
Other combinations of these pairs are also traded, and together constitute around 95% of the total currency trading market. Even though the number of pairs which are actively used in currency trading is small, the income from them is sufficiently large to make this market overall more popular than the shares market.
It is important not only to know this basic information, but other details as well, in order to be successful in the currency trading business. With an understanding of the basics of the market you can then build up your knowledge on more complex matters such as:
* the psychology of trading
* the systems of Forex or currency trading
* risk management