If you?ve ever been to a different country, you must know with the expression currency trading. As an example if you?re from the United States and have ever visited a country of the European Union (for example Great Britain), you must have had to turn your US Dollars into Euros.That?s because special countries use different currencies, and you can?t pay with your own country?s currency all over the world.To give another easy to understand example, if you go to Japan you need to exchange your country?s currency for yens, because that is the certified currency in Japan.
Forex is all about these exchanges. Forex basically stands for trading currencies against another type of currency. Just like in the above case, you can sell USD and get any other currency such as Euro, AUD, Canadian Dollar, Indian rupees, etc.In its name, For stands for foreign, while ex stands for exchange: For(eign)ex(change).That?s the reason it?s called foreign exchange.
How does trading currencies work?
Tough at first sight the idea of trading special countries? currencies against each other may seem strange, it makes perfect sense.Let?s study an made-upexample.
It?s likely that in the beginning of the year one thousand Australian dollars are worth one thousand and a hundred American dollars, but by the end of the year the same amount of Australian dollars are worth one thousand and two hundred American dollars. That would denote that if someone bought one thousand AUD in the beginning of 2011, he or she could trade it for one thousand and two hundred USD at the end of the year, making himself or herself a $100 profit.That?s how it?s feasible to make money with Forex. Martin has been providing inspiration and training leaders and individuals for several years on the matters of Futures Day Trading and Trading Psychology.
Where does Forex trading in realty happen?
Obviously, if prospects want to trade anything, they need to have a market for that. In the extreme case of Forex trading, the market is provided in a outstanding way.An exciting thing about this of Forex trading is that there isn?t a central place where foreign exchanges are traded. All deals are conducted by electronic means via personal computer networks, between traders who can be coming from anywhere in the Earth. The method?s name is over-the-counter (regularly abbreviated as OTC) which, in this instance, means that all currencies are changed through a broad dealer network.
With 4 trillion USD being pumped in every day, the Forex market is literally the largest monetary market in the world. Even the popular New York Stock Exchange is almost nothing compared to this huge figure.
The global Forex market is open literally 24 hours a day, five and a half days every week.
What settles whether Currency A or Currency B is stronger? An almost never ending number of aspects are taken into consideration when they determine the price of a existing currency. The rate is mainly calculated by comparing supply and demand numbers, economic power, political situations with future predictions and assumptions of one country?s currency against another one. The most popular currencies in the Forex market include US Dollar, yen, Euro, AUD, British Pound and finally the Swiss Franc. As incredible as it sounds, more than 85% of all exchanges are a combination of these money types.
Another exciting fact about FX trading is that you don?t really have to be an expert in order to have some success at it. Of course some education can be functional, it isn?t required, thanks to some software that have been invented to help out the regular traders. Some programs don?t even require a human to be present; they perform the exchanges automatically.
When someone gains in the FX market, it?s logical that another one loses at the same time. If two people bet against each other (they speculate on different currencies) they cannot gain both at the same time, one of them has to have a negative balance.
And that?s the explanation why trading Forex is not an idyllic way of earning for the average Joe. Earning is never guaranteed when trading the stock market and it?s not any different in the case of Forex. If you also have a family to take care of, it?s even more important to diversify your income streams. This shouldn?t discourage you from giving it a try however, if you don?t cross the basic safety protocols.
To recap the above mentioned ideas, you can play with the Forex market all you want, as long as that doesn?t put in danger you or your family.
Source: http://personal-finance-info.org/blog/finance/how-does-forex-trading-work/
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