With globalization of the manufacturing and trading markets, international currency trading has become one of the most rapidly growing activities in the financial markets today. Because trading involves markets from around the world, a trader can trade currencies somewhere, 24 hours a day 5 days a week. Volume on the Forex is larger than any other exchange in the world. It is estimated that over $4 Trillion trades daily.
To make money with international currency trading one must be willing to spend the time necessary to become educated and become an expert in the field. The market is extremely competitive and complex.
There are books that try to teach someone to become successful trading. There are also trading courses that can be helpful. In choosing either of these avenues be sure to get good recommendations first. Taking a high quality course, taught be an experienced trader is usually best.
International currency trading is a high risk venture. Not only are there many professional traders competing against you but there are many factors that affect price movement. However, one of the major risk factors of this form of trading is that only a small portion of the capital required to trade is put up by the trader. Leverage is a large portion of your trading capital. Your broker will lend you most of the amount required. Therefore, you can potentially lose more money than you have deposited. The trader must be aware of and be willing to accept this risk.
Currencies are traded in pairs. In other words, you are trading one currency against another. Some of the most common pairs are the EUR/USD(euro and U.S. dollar), GBP/USD(British pound and dollar), USD/JPY(dollar and Japanese yen) and the USD/CHF(dollar and the Swiss franc). The first currency in the pair is the base currency. This is the one being purchased/sold. It is purchased with the currency listed second(quote). The base currency is purchased if the value is expected to go up against the quote currency. If this happens, it is sold at the higher price to realize a profit. If the base currency is expected to drop instead, it can be sold with the intention of repurchasing it at a lower price in the future, realizing a profit.
The types of participants in the Forex market vary widely. The largest group is that of the inter-banks. The inter-banks are the largest investment banking firms from around the world. They trade for their customers but their primary objective is to trade(speculate) and make profits for themselves. They make up about 50% of the daily volume. Governments are many times participants in the international currency trading market. They buy and sell in an attempt to maintain stability in their national monetary systems. Hedge funds are a growing group in the market as well. They trade for their clients in an attempt to make profits. Because of the huge level of liquidity in the international currency trading market, individual traders find it easy to participate in this market also. Speculators make up nearly 70% of the transactions on the Forex.
Many things affect currency levels on a day to day basis. This is an area where ongoing study of the market is required. Understanding the multitude of factors that may move prices up and down can take some very intense research. National deficits or surpluses have a major impact on currency prices. The level of employment in a country is another issue to consider. The level of political stability can move prices also. These are just a few of the many conditions that weigh on the currency market.
Most traders use price charts to help them make trading decisions. Prices are plotted on the chart to help the trader identify trends in the market. Since many trends in a currency last for a good period of time, you must understand charting so you can find the trends and stay with them as long as possible.
Becoming a success in international currency trading is every participants goal. The best advice in become successful is to be prepared before you start.