Getting to grips with trading forex

Julie Brownlee, Fsp Invest, 06 May. 2015

Tags: forex trading, forex, currencies, currency trading, trading, how to trade forex, forex trading basics,

If you’re looking for a way to trade international markets, one option you have is forex trading.

So what is forex trading? How does it work? And how can you do it?

Read on to find out…

What is forex trading and how does it work?

Forex trading involves trading the world’s currency market. This is the largest, most liquid financial market in the world.

Forex stands for foreign exchange. The values of currencies are always quoted in relation to another currency. For example, the rand/dollar or rand/euro.

As trading forex means you’re trading pairs of currencies, you buy one currency and simultaneously sell another.

For example, you buy dollar with euros if you think the price of the dollar will increase in value compared with the euro.

Currencies are usually quoted to four decimal places. For example, the euro/rand (EUR/ZAR) 13.6320.

A pip is the smallest unit that a currency price changes. Using our example above, if the EUR/ZAR moves up four pips, the quote would become 13.6324.

One exception to this rule is the Japanese yen. This is quoted to two decimal places.

How you can trade forex

If you want to trade forex, you have a couple of options. These options depend on what currencies you want to trade.

Say you decide you want to trade the rand against major currencies, you can use currency futures. To trade these currency futures, you need a futures account with a stock broker.

On the other hand, if you decide you want to trade major currencies excluding the rand, you can spread trade forex. You don’t need to use your offshore allowance for this. You just need to open an account with a spread trading company offering this kind of trading.

If either of these options interests you, make sure you gain a thorough understanding of what you’re doing before committing any money.

Trading forex means trading on margin. This form of geared trading is high risk and it’s vital you understand the risks before trading.

So there you have it, getting to grips with trading forex.

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