Globally, over $5.3 trillion is bought and sold every single day in Forex trading, making it the most widely traded market in the world.
When And What To Trade
Forex trading takes place in the currency market, where people buy and sell ‘commodities’ and hope to make profits based on their current value.
That can be a bit confusing for the beginner. What exactly is the commodity being sold? Is there a physical market and how does a trader make profits?
The points highlighted by the questions are what make Forex trading unique.
First, the commodity that is traded in Forex is currencies of different countries. That is, you buy and sell money in the currency market.
To put it in a better perspective, think of the commodity you buy in the market and imagine it as money with a specific value. So, you buy the ‘commodity’ (money) in the ‘market’ (currency market) and hope that its value will increase at a speculated period so that you can resell it in the same market and make profits.
Another unique thing about Forex trading is that although you’re buying a commodity (money) in the market, none of them is physical. There is no physical exchange of money or a central trading spot like, for example, the NYSE in stock trading.
Everything – the buying and selling of different currencies of different countries and the market where the exchange takes place - is digitally transacted through your trading account at an interbank market, which connects a network of banks and institutions together.
How Forex Works And The Best Time To Trade
In Forex, trading is done in pairs of currencies. For example, you may want to trade the pounds sterling versus the US dollar (GBP/USD), after making an informed analysis of the market and being able to accurately speculate fluctuations in value that will benefit you.
One insight is the current major economic and political events, policies and trends, and their potential impact on the value of the home currency.
So you may decide to buy the GBP, hoping that it will appreciate (or strengthen) in value against the USD. If your speculation is proved right, you sell and make a gain.
If your speculation proves otherwise, you’ll be sitting on a loss.