What is currency trading?
At BasicForex.net, we aim to give you all the basics you need to get started with online currency trading.
We give insight into the best online forex brokers, explain how and where you can set up a forex demo account and much more.
But first and foremost, we have to answer the important question: what is currency trading?
If you give someone some euros and they give you back some dollars in return, you would both be currency trading. It's basically as simple as that, although currency trading also happens at a much larger scale.
There are around 200 countries in the world, and together they use more than 100 currencies to assign value to goods and services, and pay for all the things they need.
Now more than ever, humans travel beyond the borders of their countries. Not just to take a holiday, but also to buy and sell products, supplies and even labor. Whatever the reason is, whenever someone crosses the border - physically or virtually - chances are that they'll need some (or a lot) of the local currency to be able to do transactions.
But currency trading is not just done out of the need to acquire another currency. The majority of currency trading is done to make a profit on the trade itself, or to make money in the future, when it can be traded back at a better price.
Currency trading, just like regular trade, follows the concept that if you sell something for a higher price than what you bought it for, you are making a profit.
Trillions of dollars worth of currency trading is done all around the world every day. That makes money by far the most traded commodity in the world. Surely, such a big market needs to have a name.
The foreign currency exchange market
All the currency trades in the world combined, form the foreign currency exchange market. Another popular name used for this is the forex market. The term forex is derived from FOReign EXchange.
Since currency trading is being done almost anywhere, you can access this market almost anywhere too, from airports to the internet. So you won't have to go to one particular place to trade at the forex market, which is one of the reasons it became so big, and why it's so easy to get into currency trading yourself.
The largest amounts of currency are traded by the major banks, with each other. Their trades account for about 40% of the total foreign currency exchange market. Companies, hedge funds, pension funds and other, similar institutions are also important players in the forex market, but individuals such as yourself can also step in quite easily, using forex brokers.
As you probably know, there are no two currencies with exactly the same value. Ten dollars are worth less than ten euros (at least, it was at the time when we wrote this), but exactly how many dollars you will get for ten euros can change literally from second to second.
These changes are never that big, but big enough to make the foreign currency exchange market a potentially very lucrative playground for speculative traders.
To learn more about what the foreign currency exchange market is, and how it works, read this article where we explain its workings more in-depth.
If you wanted to get into the kind of speculative currency trading that goes on at the foreign currency exchange market, your first step would be to open an account at an online forex broker. This is a website where you will get access to trading software after opening a free account. You can then use this software to make currency trades with just a few mouse clicks.
Some appealing aspects of trading with these brokers, are that no commission is charged, and that you will often receive a bonus without even having to deposit any money.
A good example is Plus500, where new members can get a €25 no-deposit bonus. Simply follow this link if you want to take a look at this online broker. Keep in mind that your capital may be at risk.
If you want some more suggestions for finding good currency trading platforms, feel free to read our article about the best online forex brokers.
Having a good strategy in currency trading can really improve your chances of success. If you want to get your hands on some good currency trading strategies, it can be smart to take a look at the education sections of the various online forex brokers. Most of them offer at least some basic information about currency trading, but some brokers take it to the next level.
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The best example of an educational forex broker is Markets.com.
This website has an extensive learning section, where you can study a wide range of currency trading topics. The offer of information and training is not just big, but also very diverse. Markets.com offers eBooks, video tutorials and even webinars, in which currency market experts personally answer your questions.
To start learning at Markets.com, simply visit their website, and navigate to the education section.
Now that you know what currency trading is and where you can do it, nothing stands in your way of making your first successful currency trades! Simply open an account at an online forex broker, and start practicing with a demo account - or go ahead and trade for real money if you prefer.
Or, if you want to do some more reading first, just browse through our website for more articles about currency trading.