Currency trading or forex trading means trading in the foreign exchange market. Currencies are exchanged with each other to make a profit from the forex market. The exchange rate of currencies is determined by the forex market on the basis of different market factors.
Online trading in currencies has become a lot easier with the help of online brokers. Traders can select a broker and it can act as an intermediary between the trader and the exchange. Study market factors, make analysis to enjoy profits from the market.
Understanding Forex Trading
Some of you might be thinking What is forex trading? Let us understand it in detail. On the forex market currency pairs are listed along with exchange rates. Those exchange rates denote how many units of one currency can be traded for one unit of another currency.
Those rates fluctuate up and down during the whole day because of the fundamental factors of an economy. The first currency of a currency pair is known as the base currency and the second one is called the quote currency.
Traders can go long or short similarly to the stock market to place trades and earn profits. There are many benefits of trading in the forex market as it is highly liquid, volatile and profitable. It is also one of the largest financial markets in the world.
Is the Forex Market Profitable?
The forex market’s daily average turnover is near 6.6 trillion dollars. This market is full of potential that can fetch higher profits on your investments. A few of the benefits because of which the market is highly profitable are:
High Liquidity
The forex market is highly liquid because the number of market players is large. Due to this, the order execution time is very low and they execute faster than any other market. Fast order execution means you can take advantage of quick price movements. Therefore, it is highly profitable.
24 Accessibility
The forex market is not like the rest of the markets which allow trades for only a few hours. This market is open 24 hours a day and five days a week, which is the highest among all the financial markets. Hence, the opportunities for profit-making are more in the market.
Low-Cost Transactions
A transaction cost in the forex market depends on the spreads of the currency pair. Spreads are measured in pips which are very low. They are the difference between the bid and the ask price of a pair. Therefore, the costs are low, which means more profit.
High Leverage
Traders get high leverage for trading in the forex market. There are many brokers which are offering high leverage for retails as well as professional traders. High leverage means traders need to make less investments. Hence, large profits can be possible.
High Volatility
The market is highly volatile as the exchange rates can go up and down real quick. Traders can take advantage of the volatility to make high profits from the foreign exchange market. Go long or short as per the condition and earn higher returns on your investments.
Study Market Pricing Factors
The exchange rates of currency pairs in the foreign exchange market depend on several factors. As a trader, you need to study those factors to identify profit-making opportunities in the market. The factors are:
Interest Rates
The interest rates are a major factor behind the changes in the currency pairs exchange rates. Higher interest rates mean a strong economy and vice versa. Therefore, study this before investing in any pair.
International Trades
The exports and imports of an economy are a strong way to recognise its financial strength. Higher exports better economic growth and vice versa. Therefore, before choosing a currency pair always remember to analyse it.
Public Debts
The amount of debts on the government are also necessary for recognising the power of and economy. The debts should be low as it denotes a healthy economy. Traders must analyse this before selecting a currency pair.
Performance of Economy
Also, measure the overall performance of an economy before choosing a currency pair. Make sure to study the factors such as unemployment rate, inflation rate, and many others before investing in it.
Choose the Best Brokers
If you want to start forex trading remember to select a broker among the top brokers operating in your region. PrimeFin is the best broker. The broker is the best pick for a beginner as well as a professional trader. It offers a free demo account and educational materials. Traders also get many analytical tools and access to trade on a globally recognised platform that is MetaTrader 4.
The Bottom Line
Now when you have got your answer about what is forex trading? and how profitable is it? You must be thinking about strat forex trading. Conduct thorough research before you start trading. Keep a close eye on the market movement to grab the best opportunities. Make more money with the forex market.
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