In this trading community blog we talk about online trading
- what is forex trading?
- what is binary options trading?
- what are the risks of online trading?
Forex trading Definition
The trading of currencies of different countries is called Foreign Exchange Market or, in the shorter form, Forex. The Forex Market sees the most important international banks playing the leading role, and the broker, the buyers and the sellers as ‘supporting actors’.
So when we deals with Forex Trading, we are dealing with the trading of different currency pairs (for example Euro versus United States Dollar or versus United States Dollar versus Pound) from different countries that are considered each against the other. The Forex trading works completely on line, and this is probably its most important characteristic. International trades, investments, curreny conversions, are all negotiation of interest of the Forex trading. All these Trades in the Forein Exchange Market are based on the payment in different currencies and on the exchange from a currency to another one. The exchange can be advantageous or not and this is one of the basic of the Forex trading.
Let’s try to understand better what is the meaning of trade different currency pairs.
The first point that probably everybody more or less know, is that those operate in the Forex Trading hope they can gain money through this channel. This is true, but not always true. All those that approach the Forex should have always clear in mind that earn and losses are both probable, so in the same way a trader can earn money or can lose it. Or, to be really precise, for those that are not very skilled, losses are the most probable results.
So, how does it work the Forex Trading? How is it possible to earn money with the trading of currency pairs? Let’s have an example with two very common currencies, that are United States Dollar (USD) and Pounds.
A trader buys one thousand pounds in a certain period that could be, for example, march 2013. He purchase them with the US Dollars, so he spend about one thousand and six hundred dollars (we have supposed that the exchange pound versus dollar is 1:1.6). At the end of May of the same year, our trader realizes that the value pounds versus US dollars increases, so that the exchange is 1:1.7, that is that one pound is equivalent to one thousand and seven hundred dollars. For this, the trader can decide to sell his dollars (or to close his trade) so that he would have earn one hundred dollar. Of course, if he is not a good trader, he can do a wrong play, and sell his currencies in a moment in which the exchange is disadvantageous, because the exchange is, for example, 1:1.5. In this case he would have lose one hundred dollar.
To trade with currency pairs or with stocks, a broker or a market maker is needed. To be sure to ask to a real Forex broker and not to an impostor, the trader should check the lists of qualified broker available on line. Of course, today, all the trading procedures are made on line, with few clicks, without meet people, without offices and without appointments. This means that everything is faster, but at the same time, this can be more dangerous for the inexperienced traders. To avoid risks, several on line brokers make available on line customer support that explain the basic of the on line trading.