What is Forex trading? This is a question that anyone when investing and participating in Forex needs to know. Do you know yet? Let’s learn with ForexBrokersSouthAfrica to be able to trade Forex better!
Before learning what Forex trading is, you must know a few things about currencies
If you wonder what Forex trading is, then first of all, let’s take a look at the world money markets first. In the world there are many countries, with different cultures, customs and lifestyles. With the exception of the eurozone, all countries own their own currency. There are also obvious differences in the value of money between countries. In a national territory, that national currency has the same value, but it will change in value when carried to another country.
For example, at the present time, 23,200 ZAR will be exchanged for 1 USD, 1 USD will be equivalent to 0.78 British pounds, 1 British pound will exchange 9.0 Chinese yuan,
What is Forex Trading
However, these currencies will not keep their prices because money markets are always volatile. Maybe tomorrow, 23,300 ZAR will exchange 1 USD, 1 USD will be equivalent to 0.79 British pounds, 1 British pound will exchange 8.8 yuan of China. That is when the US dollar increases against the ZAR, the British pound decreases against the US dollar and the yuan decreases against the British pound.
What is Forex trading? Profit from the difference in value when trading Forex
Realizing the obvious price volatility in the money market, Forex trading was born. That is also the reason that you should learn what Forex trading is when you want to invest currencies (Forex).
In life, when buying goods, the buyer will want to buy at low prices. While the seller will want to sell at a premium price. When investing in shares, the player will buy n shares at the price X. Hold those n shares until it goes up to X + and sell. Same for Forex trading, the participants are trying to buy low and sell high to make a profit.
For example, US $ 1 is at 111 against the Japanese Yen today. An investor can spend US $ 100 to buy 11100 Japanese Yen. When the Japanese Yen appreciates against the US dollar, the investor sells 11100 Japanese Yen and makes a profit.
So what is Forex trading? Simply put, it is the trading of buying and selling of currencies circulating in the world market. The main purpose of Forex trading participants is to make profits based on price differences.
What is buying and selling in Forex trading?
When investing in Forex trading, you are trading currency. Usually each currency has a bid and a ask price. The price to buy a currency is the bid price, whereas the price to sell for that currency is the ask price. Usually, the bid price will always be higher than the ask price. The difference between the bid and ask price is the spread.
Forex is a personal playground for banks, monetary funds, financial funds, import-export companies and large corporations…So to join Forex, 100% of individual investors must go through an exchange to can open accounts and trade. Spread is the brokerage fee, which varies from exchange to exchange, and is of very small value.
What are the risks of participating in Forex trading?
When you really want to learn what Forex trading is, you should also learn about risk. One thing anyone knows when investing Forex is that risk comes with profit.
First, the value of currencies will always change based on market factors. Typically the economic and political news of the countries that own that currency. Therefore, the market trend will be difficult to determine. So it is difficult for traders to make a profit on the Forex market, especially with little experience.
Second, many traders only invest in a certain currency, or in other words, they don’t diversify their portfolios. While diversifying portfolios is a method to generate more profits. Investing with just one currency pair can make you an “expert”, have more trading skills and understanding the market. However, as skills get better, you should diversify your portfolio. At that time, your profit will be more and the risk is also corresponding.
Third, many traders are not knowledgeable about the costs and commissions when investing in Forex. Be aware that fees and commissions reduce your profits. Therefore, when preparing to invest, you should choose brokers with low spreads. Then, you will trade a lot better, the risk will also be somewhat limited.
So in short, what is Forex trading?
Like many other investment channels, Forex investment offers traders many opportunities to make quick profits, but in it also includes the corresponding risks. Only when you have the knowledge and experience of Forex trading that your chances of making money in this school will become better. So, if you want to participate in Forex investment, you must constantly improve your skills, knowledge of the market, knowledge of politics, macroeconomics and agility in capturing information.
Hopefully, through this article, you have the answer to the question “What is Forex trading?”. Have a realistic view of how Forex market works, opportunities and risks when participating in investing. Good luck!
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