Forex trading or Foreign Exchange is the process of trading currencies across different nations. In Europe the currency is EUR (Euro) and in United States the currency is USD ($). So, when you trade USD for EURO or vice versa, the process is termed as forex trading.
How it works
Forex trading is done with the help of a broker. As a trader, you choose a currency that you predict to have an increased value in the future. For example, if you purchase 1,000 Euros now, it might cost you around $1,425 USD. After a few months, if 1 Euro costs you 1.60 USD, then after selling all 1000 Euros, you earn a profit of 175USD.
Forex trades can either be placed through a broker or a market maker. The trading can be done within a few seconds after opening an account. You can place your order with just a click and the broker then passes the order and credits or debits your account with the appropriate amount at the end of the trade, which depicts either a gain or a loss.
Benefits of Forex Trading
24 Hour Market
Forex trading is conducted worldwide and trading is done as long as the forex market is open anywhere in the world. For example, the trading will start on Monday when the market open in Australia and will be closed on Friday when the market closes in New York. You can find more info regarding opening hours and timings at Forex Lasers but in short, the market remains open for 24 hours a day on all weekdays.
Liquidity is capability of an asset to get converted in cash rapidly and immediately. In Forex trading, the word liquidity means that you can transfer large amount of funds in and out with a minimal price. You can transfer the money anywhere without much loss.
Low Transaction Cost
The Forex Trading is based on a low spread feature. Spread refers to the difference between the selling and buying price of trade. In Forex trading, the cost of conversion from one currency to another is added to the price. So, the transaction cost is very low.
Profit from Falling and Rising Prices
The Forex Trading has no restriction on directional trading. If you think a currency is going to rise, you can buy it and make money. If you think the same currency will fall, you can earn money by trading that currency as well.