Did you know that the largest market in the world isn’t the New York Stock Exchange or the Nasdaq? It’s actually the currency market, where the yearly trading volume has ballooned to 1.4 trillion dollars. Currency trading is also referred to as the foreign exchange, Forex, or FX trading. When a trader enters the foreign exchange market, they are trying to make a profit through the buying and selling of world currencies.
Here are a few currency trading basics to keep in mind as you evaluate whether or not to start trading in the foreign exchange:
- Why day trade currency? The spreads for trading currency are low, which means the risk and cost of executing a currency trade is palatable for day traders. The foreign exchange is a highly volatile market, allowing an experienced day trader to profit from the daily price movements in currencies.
- Who trades currency? In the past, the foreign exchange was closed to day traders and other retail investors. The market was dominated by big banks and multinationals. Today, though individual and retail investors make up just a tiny fraction of the overall trading volume, all are welcome to trade in this massive exchange market.
- What’s the objective? Currency traders want to buy a currency that will increase in value against another to turn a profit. In an ideal trade, an investor anticipating the Euro will rise against the US Dollar will buy Euros and sell them when their value increases.
- How do you know what currency will rise in value? Day traders looking to profit from the foreign exchange tirelessly research the market to become knowledgeable about the latest trends. Websites dedicated to monitoring the foreign exchange have information that will help you formulate an effective day trading strategy.