In this fast-paced, ever-evolving world, things like cryptocurrencies, the stock market, share trading, NFT’s, and others have become the norm. They all involve some sort of investment or trading, and all make the news now and then. Gen Z has taken to these like fish to water, thriving in their environment and learning every day. One of these upcoming trends is trade in fx, which involves trading one currency pair against another, and predicting that one currency will rise or fall against the other. People starting to trade fx is relatively new, emerging sometime around the early ’70s, and it has gone on to become an enormous global market that any individual can trade in. It shares a lot of similarities with other markets but has some differences like its accessibility and global connections that make it stand out.
What is forex trading and how does it work?
Since ancient times, people have always exchanged goods or currency in return for some product or service. This is what the forex market is except that it deals exclusively with currency, and all with help of the Internet. Essentially, when one currency is pitted against another, the process of predicting whether one currency will dip or rise in comparison to its partner is known as forex trading. Profits and losses are made mostly on the exchange rate predictions rather than the actual delivery of the currency itself. The trading is done using pairs, for example, GBP/USD, in which the former is the base currency and the latter is the quote currency. The price of a forex pair is the equivalent of the left-hand currency in the right-hand side currency.
Whether the base currency rises or falls against the quote currency is the crux of the trading.
Why should one invest in forex trading?
1. Trade anytime, anywhere
Unlike other markets, forex is not centralized. This means that currency trading and transactions are done through computer networks all around the globe.
The market is open throughout the day for 5 days of the week, and the currencies are traded at all major financial centers, so the time zone is not an issue. An individual needs only an internet connection, a system, and a decent knowledge of forex to begin.
2. Global impact
As forex deals with every currency, and everyone uses money in their respective countries, forex trading is a very important market. It is the largest market in the world and is extremely liquid, with volumes of more than 4 trillion dollars a day, far exceeding any other exchange-based market. International factors such as countries’ credit ratings, economic data, market sentiment, and others are all heavily dependent on the forex.
3. High risk, high reward
Another difference in trade in fx is that it is a leveraged market. Instead of having to pay the full amount, a small amount is used as a deposit. This deposit amount is known as a margin.
The margin is what gives an individual a leveraged position while trading in forex. It is represented as a percentage of the total amount. When a leveraged position is closed, the profit or loss is dependent on the full size of the trade. This means that even though there is a risk of amplified loss, there is an equivalent magnification of profit.