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FX Trading: An Overview

by: isdnfhj12 on Date: Mon, 8 Nov 2010 Time: 10:33 PM

FX trading is known to generate stupendous liquidity if conceptualized well and executed with dexterity. When you trade exchanges of various countries against each other, it is known as currency trading or foreign exchange trading. For example, Euro is the currency of Europe and Dollar is used in the United States. If you buy USD and sell Euro simultaneously, it is known as a deal of forex trading. But, there are various strategies and tactics which need to be mastered for sustained gains in the foreign exchange markets.

How Does FX Trading Work?

Foreign exchange trades are typically carried out through a broker or a market maker. You can easily place your order through an online broker in a matter of seconds. The broker then passes it on to his partner in the market, who fills your account as per the order placed. Next, you scrutinize the movements in the markets and exercise several strategies to maximize your gains. When you finally decide to exit the trade, the broker closes your account in the interbank market. Then he credits your account with the profit or loss, depending upon how your trade has performed.

A simple example of trading FX is as follows. Supposing, you have bought €1,000 with $1,200 at the beginning of the year. Now, toward the end of the year the price of €1,000 becomes $1,300. This is an advantageous position for you to sell the stuff and gain $100 from the transaction. This is how a transaction of FX trading is completed.

What Are The Benefits Of Forex Trading?

There are several reasons for choosing foreign exchange trading over other forms of market transactions. Some of the prominent examples include the following:

*It is a 24-hour trading market. Trading continues round the clock. Therefore, you have more time at hand to exercise your strategies and manage your risks. You can trade as long as some market somewhere in the world remains open.
*The transaction costs for trading in foreign exchange is quite low. In most cases, the transaction cost is built into the price and is commonly known as the spread. Therefore, the gap between the buying and selling price is known as the spread.
*You can use leverage over and above what you have in your account. This can enable you make more money. Supposing you have a 50:1 leverage and you have $1000 in your trading account. Then you can use 50 times the same amount that is $50,000 for trading purposes. This is a unique advantage that can attribute to substantial gains.
*When you trade in forex, you can take advantages from rising as well as falling prices. There are no restrictions for directional trading in forex trade. If you gauge that a currency pair will prove to be profitable, you can either buy or go long. Similarly, if a pair is about to decrease, you can sell or go short.
*Forex markets enable high liquidity. Large amounts of money can be moved in and out of several currencies with fractional price fluctuations.

About the Author

For comprehensive knowledge on FX trading, you can visit www.igmarkets.co.nz. There are several strategies and pointers for currency trading you can learn from here.

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