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Currency trading has been described as a “gamble”, as a lucrative way to earn a living or supplement your income and it has been said to be a scam by some people to make money off you. Forex trading can be a gamble as there are no guaranteed returns on your investments, because exchange rate fluctuations are unpredictable. It can be lucrative if done correctly but at the same time you need to understand that there are definitely a lot of scams out there as there is no set marketplace where currency trading takes place. The trick is to do your homework before you dive right in.
Currency Trading Basics – What Is Foreign Exchange?
Foreign exchange is exactly what the name suggests; it is an exchange of one currency for another foreign currency. So basically, you will “sell” one currency to “buy” another currency. This is done all over the world and is the largest market today.
Who Does Currency Trading?
The currency trading market has been dominated by banks across the globe for quite some time. This included reserve banks, federal banks, investment banks and commercial banks. But more recently the currency trading market has been flooded by all kinds of traders which include money brokers, large conglomerates, registered commercial and retail brokers, private speculators and futures and options traders.
Must I Invest Lots Of Money To Trade?
Not necessarily. Different brokers or trading companies deal with different types of accounts varying greatly in size. Some deal mainly in big accounts for companies and others deal in private accounts varying in size. Different online traders can ask from $100 to start off to $10 000. Look for traders who offer mini accounts as well as demo or practise accounts if you are looking to start small.
What Does it Mean to Be “Long” or “Short”?
When doing forex trading, you will always trade in pairs. So when you trade in Dollars for some Euros for instance, you are “short” on the Dollars because you no longer have them and you will be “long” on Euros because you now have them. In that sense you will always be “long” on one currency and “short” on the other.
What Determines Forex Rates?
The prices of different currencies can be influenced by a variety of factors which can include political as well as economic conditions. Interest rates and inflation can play a role in forex rates as well as large market orders.