This article looks at different aspects of trading on the foreign exchange rates market.
The foreign exchange rates market is one of the largest and most lucrative trading environments worldwide. The daily turnover stands at $4 trillion and is constantly growing; this is due to the growing interest rates from traders and its high levels of liquidity.
The foreign exchange market allows traders to trade all global currencies directly as there is no central exchange. This decentralisation also allows them to compare currency prices so that they can trade on the best exchange rate for their currency pair. The spot foreign exchange market operates on a 24 hour trading timeframe from Monday to Friday, making trading possible at any time of day or night. Furthermore, all trading is conducted online so the location of the trader is irrelevant. All you need to access trading opportunities is a reliable computer and high-speed internet connection.
The act of foreign exchange rates trading
All trades on the foreign exchange rates market involve the exchange of one currency for another. This happens through a valuation of one of the currencies in the currency pair by comparing it to another currency value. The first currency seen in the pair is known as the base currency, and the second is known as the quote or counter currency. The values indicated show how much one would require of the counter currency to purchase on unit of the base. The opposite applies if you are selling a currency pair.
There are major and obscure currencies on the foreign exchange trading market. The major currencies are those that are traded more frequently, and these include:
- Great British pound/US dollar
- Euro/US dollar
- US dollar/Swiss franc
- US dollar/Japanese yen
Forex training and the demo account
It is highly recommended that all new traders undergo some form of forex training. This will provide you with an understanding of the foreign exchange rates market and forex trading. The majority of forex training programmes can be found online; however, there are also mentorship programmes where you will follow an experienced trader to learn trading in a practical environment. It should be noted that the mentorship programme requires a basic understanding of trading as the focus will be on trading strategies and trade execution.
The demo account is another form of forex training. It is available from forex brokerages and is free of charge. This is the ideal method to use your theoretical knowledge and develop trading skills. The demo account allows a trader the opportunity to trade on the forex market with virtual currency, thus removing the risk of losing personal trading capital. This provides a chance to hone trading skills, develop strategies and trading plans, and prepare you for the foreign exchange rates market.
Once you feel prepared for the live market, you can transition from the demo to live account. It should be noted that experienced traders will use demo accounts as well to test new strategies. Effective traders always test a strategy before utilising it on the forex live market.
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