What is currency trading? It is something that sounds quite simple and many people speak about it as if the meaning is obvious, but not everybody knows what it really is and how it works.
Currency trading is also known as funded trader forex trading. Forex (sometimes written FX) is short for foreign exchange.
You probably know that the value of each country’s currency goes up and down according to how well the country is doing compared with others. So for example, the value of the Canadian dollar against the US dollar will be higher or lower depending on reports of the Canadian and US economies. The same thing happens with all other currencies.
Currency values are constantly changing, so a trader can easily deal in them to make a profit. He or she can buy when a currency is worth less and sell when it is worth more, just as a stock trader would do.
The difference is that where stocks have only one value, their value on the stock exchange, a currency has different values compared with each of the other currencies. So for example the Canadian dollar might rise in relation to the US dollar but at the same time it could fall in relation to the Japanese Yen, if the Yen rose even higher.
Principles of Currency Trading
Most forex market trading is margin trading. This means that instead of buying the whole value of the currency, you can invest in only a percentage. This allows a small deposit to control larger amounts. The principle of it is that a currency is very unlikely to change in value by more than a certain percentage of its value.
To simplify trading, currencies are traded in what is called pips, or price interest point system. These are the units of trading. They give a standard for comparison as the currency values change relative to each other. So you will hear traders talk of a currency gaining or falling by a certain number of pips, rather than talking in dollar terms.
How to Make a Profit With Currency Trading
In order to make a profit with currency trading, you need to have some idea of the likely movements of currencies. This knowledge can be gained by analyzing the markets or by applying a system that experienced traders have figured out from their own analysis.
If you are a beginner it is probably better to be receiving your information and analysis from somebody with more experience at first. You can pick up a lot of different systems online and watch how each one does, or you can work with an automated system. These are known as expert advisers or forex robots, and they will make the trades for you when the time is right according to the settings that you have programmed.
If you use an automated forex system you do not need to know what is currency trading in so much detail, although as with all things, the more you know the more success you are likely to have.