Forex means exchanging of different major currencies in the world for one another. The main currencies are US Dollars, British Pounds, Swiss Francs, Japanese Yens and Euro. This market encompasses many financial institutions, banks, governments and business houses.
Most of the trading is done among nearly 300 major international banks. They are protected from any huge unexpected fluctuations in values of various currencies by covering their risks by way of currency trading.
The trading is done in pairs of currencies with respect to each other. To make profit you sell one currency and buy another one in lieu of it. For instance, US Dollar and British Pound form a pair. The formation of the pairs depends on the traders. You may sell Dollars to buy Pounds at the same time if you think pound is going to gain in its value. The fluctuations in their values with respect to each other will determine your gain or loss. In other terms, it is simply going long or short on currencies. You may go short on US dollar and long on British Pound. The forex trading is done in one currency with respect to other currency, as their relative values vary continuously.
Another advantage with the trading in forex that attracts many people is the high leverage in currency trading. Usually people trade between 25 and 50 times. There are great possibilities of making profits or incurring losses. You should be cognizant of the risks in this trade. Therefore, proper training in forex trading is essential for beginners.
The price fluctuations of currencies are attributed to many things. The confidence in people of a country, the economic conditions and policies of the country may decide the value of their currency. When confidence of investor is lost in a country, its currency loses its value very fast.
The currency trading is done by anticipating fluctuations in their values with respect to others. In forex trading you can trade electronically on internet. Various banks and institutions have their electronic network for interaction. Small investors can trade through the service providers. The forex market is open all 24 hours. The trader can trade at his convenience on his favorable days or time.
There are some negative points also with forex trading. High leverages can affect the trader both ways in internet trading. It also requires a long time and experience to learn and succeed into this trading. It may appear to be irresistible to the new comers and cause losses. But through proper training it can be a profitable pursuit to earn from the foreign exchange market.
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