One does not need to be a daily trader for taking advantages of the foreign exchange market. This is because every time one travels overseas and exchange domestic currency to get foreign currency, he is participating in the forex market. Despite the fact that the forex market generates a daily trading volume of approximately 4 trillion, its concepts are simple. Let us access these basic concepts of currency trading to develop a clear and complete understanding.
In the currency market, there are eight major economies that make up the majority of trade in the currency market:
1. United States
3. United Kingdom
8. New Zealand
A currency trader can make big profits by trading domestic currencies of these countries that are considered to be some of the largest and most sophisticated financial markets in the world.
When traders deal in forex spot market, they are actually buying and selling two underlying currencies. It is important to note that all currencies are quoted in pairs as each currency is valued in relation to another. For example, if the EUR/USD pair is quoted as 1.4500 that means that it takes $1.45 to buy one euro.
Leverage: The foreign exchange market offers high leverage, often as high as 400:1, which means that forex traders can control $40,000 worth of assets with as little as $100 of capital. However, it is best to choose low leverage as a higher leverage sums up to huge losses when the traders are wrong.
We hope that this educative tutorial on currency trading was useful to you in more than just a way.