Have you ever heard of Forex? Forex or foreign exchange market is the largest trading market in the world in which people do the trading of currencies. It is also the most liquid market in this entire universe. It always opens for 24 hours a day except weekend.
Anyone could participate in the Forex trading since it can be done via electronic by using computer and Internet connection. Yet, most of the dealers of forex trading are banks with few of insurance companies and other financial firms. Because Forex allows traders to trade at any amount of money, banks are the dominant dealer in this market. As mentioned beforehand that it is all done through via telephone and computer network all around the world, so Forex market does not have any central marketplace.
In Forex market, a currency of one nation is traded for another currency which means it always quotes in pair. However, the major currencies that have been traded are the Euro Dollar (EUR/USD); the British Pound (GBP/USD); the Japanese Yen (USD/JPY); and the Swiss Franc (USD/CHF). Other important currency pairs are the Canadian Dollar (USD/CAD) and the Australian Dollar AUD/USD. The currency prices are quoted in pips (percentage in point).
Just like any other trade, trading in Forex market also means buying and selling another. To gain profit in Forex, investors should know many factors which influence the value of the currencies. Those are how and when to place trades at relative interest rates, economic stability, political stability, and the trade status of the country. Moreover, investors should have strong analysis on those issues and also come with good strategies in trading for example leverage or stop loss order.
Leverage is used to profit from the fluctuations in exchange rates between two different countries. It is loans provided by the brokers that handling the investors’ account. It is often use to take advantage for short term fluctuation in the trading market. Even though it may give some advantage, leverage can also give a great loss if the market goes against the investors.
On the other hand, stop loss order is used to protect the investors and prevent them from a potential loss. It is a strategy where investors could predetermine a particular point for their entry or exit price. When the market price exceeds the entry/exit price, then the stop order will become the market price. This strategy can also give a shortcoming effect especially when the market price could eventually go higher.