What is Forex Trading? what are basic things one should know about?

 

What is Forex Trading? what are basic things one should know about?

People in India, trade in stock market, commodity market, Gold market, Nifty etc. But now, people started their investment in currency market too. Just Like Stock market, the forex market is flexible and comes with high volatility. People who enters into the market with less information harm their wealth position. That is the reason we always advise one to learn first the basic things about market and then dive into this. What kind of knowledge one should get -  like how market works, how currencies pairs executed, what are bid price, leverages, margins Etc.

In total there are 128 currency pairs in which one can trade. In simple words, one can couple two currencies for forex trading.

Base Currency and Quote Currency - Have you ever heard about the types of Currencies?

There are two types of currencies one is base Currency and other is quote currency. Suppose you buy a Currency Pair like EUR/USD. What does it means?? It shows that you are buying the European Dollars while selling the US DOLLAR.

Although, you can say that the first currency is base Currency which is EURO in the above given example or the second given Currency is Quote Currency.

Risk assessment: It is important to address risks from the first trading day. Doing this for every transaction will make every one of your currency transactions a successful transaction. The money market operates through a global network of banks, businesses, and individuals who constantly buy and sell currency among themselves. The forex market is also known as the over-the-counter market, which means that the prices of currencies are constantly fluctuating with each other, which can provide more trading opportunities.

Countries - London, Tokyo, New York and Sydney have the currency markets. They work simultaneously.

Here are some Initial Steps which one should follow before trading -

Choose the Best Pair of Currency - There are total 128 currency pairs in which one can trade. In simple terms, one can couple two currencies for forex trading.

If you are a beginner you should know about the most traded Currencies. List of the currencies-

EUR (European Currency)

GBP (British Pound Sterling)

CAD (Canadian Dollar)

AUD (Australian Dollar)

NZD (New Zealand Dollar)

JPY (Japanese Yen)

Why are these currency pairs above?

Category Currency Couple of 4 categories of categories, Minor Coin Couple and Exotic Currency Couple. When trade occurs between the largest currencies. These pairs, such as US dollars and European dollars, are called key currency pairs. It is equally different from the main currencies, they are called small currency pairs or important crossed peers. Exotic Pairs have those currencies which are less - traded e.g.  Mexican Currency, Turkish Lira etc.

How to trade the forex market

Once you have selected your currency pair, how do you start your first currency exchange transaction? Basically, you can trade in two ways that is, using the spot currency trading method or the currency derivative method. Spot currency trading methods allow you to buy or sell currency after deciding how much base currency to buy or sell. On the other hand, in the exchange rate derivatives method, you can speculate on price changes without buying or selling currencies.

Risk assessment

Closing your transaction - now is the time to close your transaction, but if you enter a transaction, please continue to monitor it. It is important to pay close attention to price changes.

Important terms about the base and quote currency - Have you noticed the currency pair? Suppose you bought this EUR/USD currency pair. What does it mean? It shows that you are buying euros at the same time you are selling US dollars.

In India, people can trade in the stock market and commodity market, and now people are starting to trade in the currency market. Like the stock market, the foreign exchange market is also flexible and changeable. However, you can say that the first currency is the base currency, which is the Euro in the example above, or that the second currency is the quote currency.

Points, lots and margin points are a standardized unit of measurement used to show the value of change between currencies. Let us take an example. Suppose I took a Euro/USD currency pair and it moved from 100.1910 to 100.1916. What did you see?

Yes!! You read that right, the price of the coin begins to move from the fourth digit after the decimal point, which means that its price has risen seven points.

Gap - This occurs mainly when the market closes and the price rises when the market opens the next day. For example, suppose the market closes at 100 today and opens at 120 the next day, so this gap of 100-120 shows the market gap.

CFD: A contract for difference (CFD) is when you buy a coin for US $ 1 and sell it for US $ 2. You will directly earn a profit of 1 USD. You can trade by speculating on the buy and sell price. This method is mainly used in the futures market.

Stop Loss Order- If we start our trade and in the middle, we feel that this trade is not good. At this time, the stop loss order will help you get rid of the loss. For businessmen, it is like a panacea.

The above points will make your business travel simple and easy. For starters, this is the basic term you should know before trading.

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