Just like how diamonds are used to cut diamonds, money can also be used to buy money. Yes, a nation’s currency can buy or sell another country on an exchange platform. This is a highly lucrative and famous form of trade and is known as Forex trading. Forex or Currency trading is the most effective investment platform in the world. This blog will extensively talk about how it works, the essential terminologies involved, and the factors that drive it.
How Currency Trading works: Currency trading is a 24-hour market that is only closed from Friday to Sunday. However, the 24-hour trading sessions are deceiving. The European, Asian, and American trading sessions are the three trading sessions. Although some sessions overlap, the main currencies in each market are traded mostly during certain market hours. This means that during specific sessions, certain currency pairs will have more volume. Traders that stick to dollar-based pairs will see the maximum volume during the U.S. trading day. Unlike equities, where a trader will have the option to choose from a wide range of stocks to buy and sell, Forex only deals with currencies of eighteen nations. In a way, many traders consider this a boon as they can get to keep their portfolio as light as possible.
Pairs and Pips:
The trading of currencies is always done in pairs. You must buy one currency and sell another currency in the forex market, unlike in the stock market, where you can buy or sell a single asset. Following that, practically every currency is valued to the fourth decimal point. The lowest unit of trading is a pip or percentage in point. In most cases, one pip equals 1/100 of a percent.
The lowest unit of trading is a pip (percentage in point). A pip is one-hundredth of a percent or the number after the fourth decimal point. The fourth or fifth decimal point is used to price most currencies. The currency that pairs with the Japanese Yen (JPY) as the quoted currency are exempt from this rule. These pairs are usually priced to two or three decimal places, with the second decimal place representing a pip.
What drives Forex Trading: Supply and demand are some of the most important. When the globe needs more dollars, the dollar’s value rises, and when there are too many on the market, the price falls. Many of the dynamics that move the stock market also move the currency market; many stock traders are becoming interested in currency markets. Other events that may affect currency prices include interest rates, new economic statistics from the most significant countries, and geopolitical concerns, to name a few.
Conclusion: Most of the essentials about Forex trading have been addressed in this blog, but if you are still looking for resources that will help you dig deeper into it, please check on the premade module about it. The module has well-crafted chapters and even a self-assessment quiz that will provide you with good insight into the Currency trade. Another essential factor that plays a considerable role in Currency trading is the platform you will be using for. Tradeplus provides a well-defined platform with all the required analytical and charting tools to elevate your overall trading experience.