Currency trading is basically trading of foreign currencies. Till the late nineties, the start of the new millennium, only large banking and institutional organizations were able to take part in currency trading as this field of currency trading required so many procedures and tasks to clear. Only typical banking firms had the capability to gain access to the systems and tools required for playing in this high profile playing arena. But, as of today, technology has provided with many state-of-the-art tools so that even a single individual investor can trade along with other organizations with any of the prevailing online trading platforms.
When an investor is selling and purchasing in the currency trading market, one should be aware that there are four major “currency paira” that usually dominate the trading market. These four pairs area:
The major traget of investors is to earn maxiumum profit in currency trading. For this, they need to hold a particular currency, which appreciates in value with respect to other currencies. For example, if an investor buys, 100 British Punds for say, 200 US Dollars, he/she should hold the Pouns for a specific time period till the Britis Pounds appreciate with respect to US Dollars and can convert these British Pounds back into dollars for say, $ 240.
The currency trading market is open for 24 hours a day, which is pretty unusual if compared with various domestic trading markets in different countries. For currency trading, it is always on in some part of the globe or the other. Since every country across the globe trades in currencies in a market that is open throughout the day, the daily volume traded in currency trading is approximately $1.2 trillion in a day, which is more than the trading done on NYSE. Currency trading market can also be compared with the currency futures market (that has approximately 1% of the daily volume).
The foreign exchange currency trading is not based centrally on an exchange like the NASDAQ or NYSE. There is no central organization or authority or body at the helm, which acts as a regulatory body or even as middleman. Currency trading is majorly operational between various banking centers across the globe.
In the currency trading marketjek, anybody can open an account ans sell and purchase any quantity. As the currency trading brokers have thousands and lakhs of investors, who place trading orders through them, these brokers are meet the large transaction size by buying in huge blocks and allocating and distributing the currency between various buying parties.
Some of the terms related to currency trading are mentioned below:
Various currency pairs in the currency trading market are quoted with an ask and bid price. The ask (always higher than the bid) is the price one’s broker is willing to sell at, and the trader is expected to purchase at this quote. On the contrary, the bid is the price one’s broker is willing to purchase at, and the trader is expected to sell at this price.
A pip or a price interest point is cited as the minimum incremental move, which can be made by a currency pair. A move in the EUR/YEN from 1.2520 to 1.2545 equals 25 pips.
The currency trading market just requires only a marginal deposit to be made by the investor and the remaining amount is granted by the investor’s broker.
In some particular cases, the leverage provided by an investor’s broker goes up to as high as 400:1. This situation defines that the investor requires just 1/400 or 0.25% in balance to open a position (in addition to the floating losses and gains. Most of the brokers offer 100:1, which means that every trader requires 1% in balance, so as to open a position. US Dollars $100,000 is the standard lot size in the foreign exchange market.
A margin call in the currency trading market occurs in case the balance of the currency trading account decreases to below the maintenance margin (the financial amount required to start one position, is 1%, in case leverage employed is 100:1. Its 2% in case the leverage employed is 50:1, and so on and so forth). At this currency trading position, the broker tends to sell off (or purchases back in case it is a short position) all the trades of an investor, and hence, leaves the currency trader only with the maintenance margin.
In the currency trading domain, it is essential to acquire every single aspect of trading. One should initiate from the very first concept, and then should move to more intriguing concepts such as trading psychology, risk and trade management, and forex trading etc. And finally, a new investor should make sure to learn and master each and every single step of currency trading, before putting first step in the live trading arena.