Currency trading, better known as forex trading, is one of the most accessible and popular forms of investing, with about $5 trillion in currency changing hands every day.
This trading occurs on a decentralised global market that retail traders can access through foreign exchange brokers.
While it is possible to trade forex spot markets, you can also access currency trading through contracts for difference (CFDs), which track underlying currency pairs. These derivatives allow you to trade forex pairs without actually having to purchase and hold a specific currency.
Here is a closer look at the details of forex trading.
What is forex?
During international travel, you engage in a foreign exchange transaction when you change your home currency for the money used in your host country. Service providers typically display the current exchange rates on a digital board. These rates fluctuate based on the global market’s supply and demand for the currency.
In forex trading, you can take advantage of these supply and demand fluctuations on either spot or CFD markets.
How does forex trading work? Each trade involves two currencies, known as a forex pair. The two currencies are written as follows: AUD/USD (Australian dollar/US dollar).
- The first currency in this pair is known as the base currency, and the second is the quote currency.
- The base currency is the one you purchase, while the quote currency is the one you sell to obtain the base currency.
- The price is the amount of base currency you can buy with one unit of the quote currency.
The whole forex pair listing might look like this: AUD/USD 0.67. In this scenario, AUD is the base currency and USD is the quote currency. In other words, you can purchase $1 AUS with $0.67 US.
Reasons to try forex trading
Is forex CFD a good option for you? Forex trading can deliver the average trader:
Currency markets are very active, so you can almost always find someone to take the other side of a trade, especially if you trade major currency pairs like AUD/USD, USD/JPY, and EUR/USD.
You can access forex markets electronically via an online broker, allowing you to trade with a laptop or mobile device.
Traders can use leverage to increase their position without sizeable capital. This feature makes forex trading attractive to novice traders or traders with limited capital.
Currency trading relies on price action analysis, technical indicators, and chart patterns. You can base your strategies on these elements and have a chance of success even if you do not understand the economic factors that drive FX rates.
There are many things to consider when selecting a broker for forex trading, from security to market range. TMGM is a regulated CFD broker offering 50+ forex pairs. We provide:
- Secure access to the forex market
- Access to two of the most powerful trading platforms for CFDs, MetaTrader 4 and IRESS.
- Tight bid/ask spreads with transparent pricing
Visit TMGM to open an account and begin your forex trading career, or take advantage of our 24/7 customer support to contact us with questions or concerns.
Frequently Ask Question
When you start trading, it is a good idea to limit your use of leverage until you are confident in your strategies and able to properly employ risk management tools.
The concept is slightly more complicated if you have open positions. In these cases, the equity is the balance plus the profit or minus the loss of your current trades. Therefore, your equity can change minute by minute.
If you use leverage with a 1:10 margin requirement and have an open position worth $10,000, you must keep $1,000 in your account. If you have $5,000 in your account, you have $4,000 in free margin. If you close the $10,000 position, the $1,000 will become part of the free margin total.
The most traded pairs on the market include EUR/USD, USD/JPY, GBP/USD, and AUD/USD.