What is Forex trading and how does it work?
SrdjanPav / iStock.com In addition to information on the stock and bond markets, the evening financial news usually offers information on the exchange rate between the US dollar and various foreign currencies, such as the euro and the pound sterling. This information is not only important for tourists traveling abroad. Currency traders try to profit from fluctuations in the market price between foreign currencies. Trading in the forex market can generate huge profits but can also come with significant risks. Here is an overview of the ins and outs of forex trading. Every day, foreign currencies rise and fall relative to each other. As with anything that changes value, traders can profit from these moves. The forex market operates 24 hours a day, making it a very liquid market. What surprises many investors is the size of the forex market, which is in fact the largest financial market on the planet. The average daily volume traded is $ 6.6 trillion, according to the central banks 2019 triennial survey of foreign exchange and over-the-counter derivatives markets. The New York Stock Exchange, meanwhile, trades an average daily volume of just over $ 1.1 trillion. Related: The best robo-advisers How Forex Trading Works Forex trading is similar to buying and selling other types of securities, such as stocks. The main difference is that forex trading is done in pairs, like EUR / USD (euro / US dollar) or JPY / GBP (Japanese yen / UK pound). When you trade forex, you are selling one currency and buying another. You win if the currency you buy increases relative to the currency you sold. For example, lets say the exchange rate between the euro and the US dollar is 1.40 to 1. If you buy 1000 euros, you will pay 1400 US dollars. If the exchange rate later changes to 1.50 to 1, you can sell those euros for $ 1,500, generating a profit of $ 100. The story continues Check: Understanding Interest Rates How They Affect You and the U.S. Market Leverage effects Leverage is commonly used in the forex trading market. Leverage allows traders to buy a multiple of their original investments. For example, some forex traders will use a leverage of 20: 1. This means that they can buy $ 20,000 of foreign currency for just $ 1,000, with the brokerage firm lending them the remaining funds. Some companies may allow leverage of up to 500: 1. The leverage effect of any investment, including the forex market, magnifies both gains and losses. For example, if you buy $ 20,000 in currency and the amount increases by 10%, you will have a gain of $ 2,000. If you used 20: 1 leverage and invested only $ 1,000, thats a 200% gain. Of course, leverage works both ways. Using the same 20: 1 leverage example, if your $ 20,000 goes down 10%, to $ 18,000, you would not only lose your entire $ 1,000 investment, but you would also have to pay off your loan. to the brokerage firm. The forex market offers the opportunity to profit from fluctuations in the exchange rate. Through the use of leverage, movements in currency markets can be amplified. Forex trading is often best left to speculators and professional traders. Sources 1/ https://Google.com/ 2/ https://finance.yahoo.com/news/forex-trading-does-210000115.html The mention sources can contact us to remove/changing this article  What Are The Main Benefits Of Comparing Car Insurance Quotes Online  LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. 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