The foreign exchange market is undoubtedly one of the most gripping and fast-paced markets in the world of finance. It also happens to be the most liquid market in the world and it is this aspect which sets it apart from other markets. In recent years, online traders across the globe have increasingly acknowledged forex as an area to be exploited thanks to its accessibility and potentially lucrative financial rewards. Investors who are involved in trading currencies will be aware that the process involves making a prediction on small movements in the global economy and buying and selling accordingly. They can then utilize up-to-the-minute exchange rate data to conduct an analysis of currencies using economic forecasts to acquire a good understanding of the currency’s real value.
Online currency trading has become immensely popular with around $5 trillion forex trading taking place across the world every day. While many people regard forex as the realm of bigger institutions such as banks, the advent of the internet has made it accessible to average individuals who have spotted its potential as a means to making financial rewards.
Prior to becoming involved in online currency trading, a trader should understand exactly how forex transactions are carried out. Online currency trading is basically trading currencies across the internet and is otherwise known as an OTC market (Over The Counter). This basically means there is no centralized location such as the NYSE from which trading activities take place. The advantage of this is that traders wishing to get involved can do so wherever in the world they are located.
Online currency trading differs from the more traditional ways of transacting financial instruments in that most trading activities are essentially ‘do-it-yourself’. With just a computer and internet access, a trader will be able to work out what, when and how much to buy quite simply with just the click of a mouse. With speed being of the essence, a trader’s orders can then be executed immediately via an online broker’s platform.
Trading currencies always takes place in pairs and are referred to as ‘currency pairs’ with each currency having a specific abbreviation assigned to it. This can be illustrated with a popular currency pair such as USD/JPY which denotes the strength of the U.S. Dollar against that of the Japanese yen. The first currency in the pair is referred to as the ‘base’ currency whereas the second currency is referred to as the ‘quote’ currency. There is a huge range of currency pairs and experience will dictate which ones are likely to present better opportunities for profitable trading. All the major pairs have the USD either as a ‘base’ or as a ‘quote’ currency whereas the minor pairs do not include the USD. The majority of traders are involved in trading the world’s seven most liquid currency pairs including the EUR/USD and USD/JPY and 3 commodity pairs such as the USD/CAD which account for over 95% of all speculative trading. Taking into consideration the comparatively low number of trading instruments made up of only 18 currency pairs and crosses that are actively traded, the forex market is far more concentrated than the stock market.
To help traders determine potentially profitable trades, traders will find a series of special tools provided on a broker’s online trading platform. Once a trader has conducted an analysis of the forex market, transaction activities may be automated via the trading platform. It is the ease by which this can be done that has made online currency trading increase so dramatically over the other financial activities previously chosen by traders.
Online currency trading also happens to be the most popular way of trading binary options. The main reason for this is that currencies are particularly reactive to short-term movements brought about by the release of important economic data, presenting frequent trading opportunities. Many traders will, for example, be familiar with trading on data releases such as the U.S. Consumer Price Index (CPI) which can be illustrated in the following example. News of a decrease in this index will likely negatively impact the U.S. dollar. If we assume a positive resolution to Greece’s EU debt situation, this will positively impact on the Euro so a trader could capitalize on this situation by placing a ‘CALL’ option on the EUR/USD currency pair. If the trader makes the correct decision, the trade will end ‘in-the-money’ and he will make a profit.
Overall, online currency trading is an exciting and potentially lucrative way to trade and traders wishing to set out on this path are recommended to use the services of a regulated online broker such as Banc De Binary.