When I first heard the term “Forex trading” from a colleague, I didn’t quite understand what it was. I googled it and read a few articles; I still had no clue what it was all about.
That’s because none of those articles started from the basics. It was like as if they were explaining the procedure to someone who was already well aware of the basics and was looking to actually starting the trade.
But here, we are going to start from the basic definition of “forex trading.”
Forex basically stands for “foreign exchange.” And the people who are indulged in foreign exchange are called forex traders. In simple terminology, it is the act of trading different currencies against one another.
How is it done?
For example, if I go on a vacation in Dubai, I won’t be able to use Pakistani rupees there. I would go to a place (you might have seen/ used this before) that says ‘Foreign currency sold/exchanged here.’ There, I would trade my rupees for an equivalent amount of dirhams.
That was just a part of the most liquid marketplace, called the foreign exchange market, where currencies worth $4 trillion is traded on a daily basis. Forex trading means taking part in the foreign exchange market in hopes of making a profit.
Currencies keep changing prices so that profits can be made out of them. Like, if you think the euro will soon be worth more than US dollar, you can buy the euro currency while it is still low, only to sell it for a profit once it’s worth rises against the dollar. The suggestion for the most appropriate currency pair is called a forex signal.
However, if you buy the euro against the dollar only to find that the dollar has risen, you will face a loss.
Pros of forex trading:
- The best part about it is that you can trade as much as you want, or as little as you want. The amount of money you trade depends on you, limiting your profit as well as risk as you desire.
- It can be done around the clock. All you need is internet and a computer.
- There are little or no fees; the trading software is also free; the web resources are also free.
Cons of forex trading:
- The chances of profit will be as big as the chances of loss.
- There is no centralized exchange.
- If you are trading individually, you would have to compete against the large financial institutions.
How to be a forex trader:
If you want to learn to trade forex, you can pick up any forex course that is offered by many websites. As I have mentioned earlier, it takes little or no money to start.