Home Finance What is Forex Trading? Know The Basics

What is Forex Trading? Know The Basics


What is forex trading?  It is an incredibly liquid currency trading market with massive trading volumes that offer traders a fantastic investment opportunity.

If you ask a money markets investor the question “what is forex trading?” they will probably bring up travel. If you have traveled internationally, you most likely have partaken of the forex trading market while exchanging currencies in exchange shops.  Forex trading, also known as foreign exchange trading is not a preserve of border crossings though. This exciting currently market boasts a daily volume of $5.3 trillion making it the most significant financial market on the planet.

The growth of forex trading

This centuries-old trade can be traced back to Babylon albeit without the massive speculative activity it is known for today. The protagonist of this age-old story is money and its quality as an acceptable medium of exchange. The trade’s growth has been fueled by the existence of various currencies and the need to exchange them profitably.

Subjected to massive global market upheavals and subsequent regulations it is now a force to reckon with.  Forex trading currently thrives on the sufficient free market forces as well as the worldwide removal of restrictions on capital flow.

So, what is forex trading? Forex trading is the purest form of money trading.  It has evolved to resist simple money market manipulation, becoming a popular career and hobby for many millennials who subscribe to the “be your own boss” mantra.

What is forex trading? Speculating for profits

Need an alternative answer to the question “what is forex trading?”?  Refer to it as a very speculative yet highly liquid currency market. Foreign exchange trading allows traders to speculate on the currency fluctuation levels between two countries for profit and sometimes for sport. Influenced by a country’s economic health these rapidly mutating exchange rates of paired currencies are what a forex trader speculates on for gain.

If for example, the EU economy has upstaged the US economy, then the Euro will also upstage the dollar giving a chance for speculators to cash in on some profit or make losses depending on their speculation prowess.

How to trade

A simple forex trading platform will show the two prices of the paired currencies; the asking price and the bid price. The price difference between these two prices is known as the spread. This is where your profit lies.

As a forex trader, you can either make long or short trades to make some moolah. The long trade position involves buying a currency that is speculated to rise, then selling it if for-profit afterward. The short trade position consists of the selling off of a currency speculated to dip then repurchasing it at a lower price later on.

To make a simple long position forex trade deal, choose your preferred currency pair, determine your investment quantity then buy your currency of choice. If the exchange rate rises, you will make your profit, if not and there is a drop in prices, you should expect a loss.  With some practice and a lot of keen interest in the financial markets, anyone can make strides in this magnificent money making arena. But if any of this sounds intimidating at first, there are plenty of good forex brokers out there to help get you started.