You may be familiar with trading and investing in the stock market. But did you know that the Forex market trading volume is nearly 25 times that of the stock market? Yet, chances are you are much more familiar with the stock market as compared to the Forex market.
What is Forex currency trading and how does it work? How does it differ from the stock market, and what are the potential benefits of trading the Forex market? Here are the answers to these common questions about the Forex market.
What Is The Forex Market?
Forex stands for “Foreign Exchange”, thus, the name foreign exchange (or Forex) market. The Forex market is the global marketplace where currency pairs are traded. Forex traders seek to profit from the ever changing values of different currencies.
For example, if one thinks that the Euro is likely to increase in value as compared to the US Dollar, one would purchase the EUR/USD currency pair in belief that the Euro will increase in value. If one euro is worth $1.10 USD, and one thinks that the euro will soon be worth $1.15 USD, they would purchase Euros when they are worth $1.10 USD and sell when it reaches a value of $1.15 USD to make a profit.
What Is A Currency Pair?
A currency pair is when currency from two different countries are coupled together to buy and sell on the Forex market. A currency pair has a base currency and a quote currency. The base currency is the first stated currency in a pair, and the quote currency is the second currency with which the currency pair quote is stated.
Using the Euro and the USD, the currency pair may be displayed as EUR/USD. The Euro is the base currency, and the USD is the quote currency, and the quoted price is stated in USD stating how much one euro is worth in US dollars. If the EUR/USD current quote is at 1.15, that means that one euro is currently worth the same value as $1.15 USD.
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How To Trade The Forex Market?
Just like the stock market, you need a trading account to begin with. Once you account is open and funded, you can begin trading currency pairs on the Forex market. Some popular banks offering Forex trading accounts are Oanda and Forex.com.
Both are great starting points, and are well known and trusted institutions. Once you open up your Forex trading account, you will then be able to link your main bank account to fund your FX account. Once your account is funded, you can then begin trading currency pairs.
Before you start trading currency pairs, be sure you do some basic homework and research on how to determine a profitable trade. Most FX traders use technical analysis to determine and predict chart patterns and thus make a profitable trade. To learn more about Forex trading and technical analysis, take a look at Infinite Prosperity, a course dedicated to helping you determine profitable trades and build wealth. They have both free accounts and paid accounts for additional training and support.
Why Trade The Forex Market?
Most people may originally see the Forex market as risky business, and to be frank it can be if you’re not at least somewhat educated in how the Forex market moves. However, there remains a few facts that are worth noting that clearly support reasons one should consider trading on the Forex market:
- You can trade 24 hours per day, from Sunday to Friday
- The ability to profit can be from trades that vary just a few fractions of a percentage.
- You can leverage your account value allowing for larger profit potential, while never loosing more than you invest due to automatic margin calls.
- You can trade on multiple timeframes from minutes, to hours, to days, weeks and even monthly chart patterns.
- There are no trade commissions but a buy and sell spread so all trades outcomes are clearly stated once the transaction is completed.
- It’s a global market, and the volume of trading is nearly 25 times that of the stock market. This creates more opportunity to make money!
Trading on the Forex market presents a great opportunity to those willing to learn the basics of how the market works, and how to make trades that are statistically in your favor. You can make it a part time side hustle, or even a full time income. The choice is yours. Many even set aside just an hour or so per day and are able to make a decent income semi-passively by trading on the Forex market.