If you are looking to trade the foreign currency exchange market, it is essential you have an understanding of what it is and how it works. Some individuals are often confused by the market for despite its deregulation there are currency rules. When you are aware of these specific rules you will understand what is expected of you as a trader and have a positive trading experience.
The Forex Misunderstanding
Many individuals believe the foreign exchange is the same as forex trading but this is a complete misconception. Foreign exchange refers to the conversion of a domestic currency into a currency of a different country. It should also be noted that many people also assume you are only able to trade currencies of your home country. This is another misconception as you are able to trade in foreign currencies, plus the currencies are traded in pairs so you are required to trade with two currencies not one.
The foreign currency exchange market allows you to trade with whichever currency pair you choose regardless of your location. The only requirement is that you have sufficient trading capital in your account to trade these currencies.
The forex trading market offers a plethora of currencies to trade. There are currencies which are more frequently traded and these are known as the major currencies. The ones that are traded less frequently are known as the exotic or obscure choices. It is recommended that you learn about the different currencies before making your choices so as to trade them effectively. It is also recommended that new traders use the major currencies as there is more information available about them making them more sensible trading options when entering the market.
A unique feature of the forex market is that it operates on a 24 hour, 5 days per week trading time frame. This means you are able to trade on the foreign currency exchange market at any time of day from Monday to Friday. This allows all individuals, including those with full-time jobs, the opportunity to make money through trading forex as you can commence trading around any daily commitments. However, you should be aware that there are certain hours when the market is more volatile and specific currency pairs are more profitable to trade. You should study these aspects of the market if you want to be a successful trader.
Trading the foreign currency exchange market
All you require to convert foreign currency is a bank or financial institution who offers a foreign currency exchange service. However, when you are looking to trade in the foreign exchange market you will require an online trading platform or a forex broker.
The majority of traders prefer the online trading platform option as this allows them more control over their trades. When looking into this option you will find several platforms available to use. It is important you find one you are comfortable using and understand completely. An effective way of testing the platform is by opening a demo account on the platform and using it for your ‘practice trading.