Forex Trading and Why to Do It?

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Forex Trading and Why to Do it
The foreign exchange marketplace is where
currencies from all the countries in the world
are traded. The largest financial market in the
world has many benefits like convenient market
hours, high liquidity, and the option to trade
on margin. So, why trade forex? As a trader, you
would want to choose a market with optimal
trading conditions and the best chance of making
profits. And millions of traders across the world
believe the forex market fits these criteria.
Lets look at the top benefits of forex
trading You can go long or short. Short selling
is an intrinsic part of forex trading since you
are always selling the quote to buy the base
currency. The price of a forex pair is how much
quote currency is needed to buy one unit of the
base currency. Take into account that the forex
markets opening hours will be different in
March, April, October, and November since
countries shift to daylight savings on different
days. A forex trading course for beginners can
help you understand the working hours and how to
benefit from it better. Most liquid market in
the world The Foreign exchange market is the most
liquid market in the world, with a large number
of buyers and sellers waiting to make a trade at
any given time. Nearly five trillion dollars of
currency is converted by individuals, companies,
and banks every day, and most of this activity is
focused on generating profit. However,
individuals can also take up a forex trading
course for beginners to understand it
better. The high liquidity in the market
indicates that transactions can be completed
quickly and easily, lowering the transaction
costs or spreads. Due to this, traders can
speculate on price movements of a few pips as
well. Volatility The numerous currency trades
each day means billions of dollars every minute,
making the price movements of some currencies
wild. You can make significant profits by
speculating on price movements in either
direction. But while volatility can make you
profits, it also means that the market can turn
against you anytime, and you should limit your
exposure to risk-management tools. Leverage to
make big bucks You can trade foreign exchange
pairs with CFDs. CFDs are leveraged, meaning you
can earn more. Leverage in the fx market helps
you open a position on the currency market with
only a small proportion of the full value of the
position up front. The profits or losses you
make reflect the full value of the position at
the moment of its closing. So, when you trade on
margin, you make potentially large profits from a
smaller investment. But this also
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magnifies losses, meaning losses can exceed your
initial deposit. And hence, it is important to
consider the total value of the leveraged forex
position before entering CFDs. A variety of
currency pairs to choose from With forex trading,
you get the opportunity to trade various currency
pairs, speculating on global events and the
relative strength of major and minor
economies. Here are the various types of currency
pairs with examples, Major currency
pairs GBP/USD EUR/USD USD/JPY Minor currency
pairs USD/ZAR SGB/JPY CAD/CHF Emerging currency
pairs USD/CNH EUR/RUB AUD/CNH Exotic pairs
EUR/CZK TRY/JPY USD/MXN Hedge to mitigate
losses Hedging is how one can reduce the risk of
unwanted moves in the forex market by opening
numerous strategic positions. Volatility is one
of the reasons why forex is exciting, but it can
be a good way of cutting losses or limiting to a
certain amount. One of the common ways to hedge
forex is to hedge with multiple currency pairs.
You can limit your risk by going for forex pairs
that are positively correlated, like GBP/USD and
EUR/USD, and taking positions in opposite
directions. You can also use forex to hedge
against loss in other markets like commodities.
And, since USD/CAD typically relate inversely to
crude oil, it is a common hedge against falling
oil prices. Learn to hedge better by taking up a
forex trading course for beginners.