Currency trading, by definition, the barter or exchange of one currency against another. Remember those times when you have visited other countries and then you get to trade your currency for the country's currency to buy something you like. But if we talk about the forex market, the importance of these words change. In forex trading scenario, the merchant trading one currency against another currency in order to get as much profit as they can.
Currency trading is like trading shares on the exchange. The reality is that in here, the average individual investor will be run by stock traders, because they usually buy and sell shares in a somewhat faster pace than investors. The reality is that these investors just take the advice of their brokers but in the end to keep their stocks in a span of years if not decades.
So how does this one work? Let us have an example to show how the operators make profits in this kind of business. Say it current pace of the British pound to the euro forex market is around GBP / EUR 1.1200 which means to buy one British pound you have to have € 1.12. Now if you ever think that the value of the euro is more likely to rise than the pound's, then you might sell 100,000 pounds and buy € 100,000, and then wait for the result.
Several days later, the exchange rate is GBP / EUR 1.0600, which means that the pound is only equal to € 1.06. So if you sell your euro and then you can buy back 100,000 pounds, have you a profit of 6% of the investment you've made (net of fees). There is not a sole trader who has a $ 100,000 lying around in the bank to act. But that's okay because luckily enough, you really do not need all the money in reality.
As you are responsible for buying and selling continuously, all you need to have in your pocket is something that would cover any losses in trading before disappearing from the market (your predictions did not materialize) and the value of the currency you bought has started to fall down. With this, lend your broker you rest. Now, this is known as profit. Therefore on a $ 100,000 trading, the margin of around 1 to 2 percent ($ 1,000 to $ 2,000).
Now, this is the amount you need in your Forex brokerage account. And the masses will be the ones to determine the amount you trade in (which could be around $ 10,000 each, or more, depending on the currency and also broker). Trade $ 20,000 and trading 2 lots, $ 30,000 for 3 lots, $ 40,000 for 4 lots, etc. There is also the limited risk accounts in which you will only risk the cash you have on account with the broker, to avoid margin calls, which happens by allowing smaller players to trade in Forex market with the use of mini-lots/fractions a lot.
Today, more and more people becoming involved in foreign currencies. It really has its advantages that the stock market. Forex robots are always there, if you have no knowledge about the value of the different types of currencies out there, and they will be those who will trade for you according to the settings you choose. Remember that trading in Forex market is risky, which you can lose or win money. These facts will certainly give you some useful ideas when you take the next step in becoming a currency trader.
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