Lately, different currencies of the world have been experiencing dramatic changes with record breaking lows and highs. The world of money exchange has dominated the news headlines. So what exactly do you need to know about money exchange and the different trends before getting on board?
The first thing to understand though is that the money exchange market is surrounded by a high risk degrees, including losing your money. Any investment done in foreign exchange should be done solely with risk capital. You should not make investment with money that you can’t afford to lose.
What is money exchange?
You must have noticed the dynamic currency values going rising and decreasing on a daily basis. What most do not know or realize is that a foreign exchange market does exist. With the improvement in technologies, the forex (Foreign Exchange) market has grown to be more accessible resulting in an unmatched growth in online trade.
One important thing about the markets today is that you don’t have to own large amounts of money to trade in the Forex market. Any investor can trade freely in the market without restrictions.
Money exchange at a glance
The largest financial market on earth is the money exchange with an average trading volume of more than $3.2 trillion per day. The size of the market is very important since most forex markets are flooded with buyers and sellers which makes the transaction prices very low.
If wondering how the forex market is different from the trading stocks, the following are some of its major benefits.
- Most of the firms do not charge commissions. What you are required to pay only is the bid or ask spreads.
- The trading period is 24 hours. This gives you the freedom to dictate when you want to trade and how you can trade.
- Trading on leverages is possible, though this may magnify your potential losses as well as gains.
- You have the power to choose from a few number of currencies as opposed to picking from over 5000 stocks.
- Money exchange trade is easily accessible. You don’t have to be rich to start trading.
How can you trade in money exchange?
The methods of trade in one market are almost similar to those in the other markets. The only difference is that you may be buying one currency while selling another currency at the same time. This is the reason why currencies are usually quoted in twos such as USD/JPY or EUR/USD. The rate of exchange simply represents purchasing price between two currencies in consideration.
For instance, EUR/USD rate is a representation of USDs that you can buy with one EUR. If you anticipate that the value of Euros will increase against US dollar, then you buy the Euros with the US dollars. If the rate of exchange rises as you anticipated, you then sell back the Euros and cash in the profit. It sounds so simple, but you should bear in mind that trading in forex involves high level of risk.
This is the sole reason why you are advised to trade with what you can afford to lose only. Before deciding to trade in money exchange, sensibly consider your investment objective, risk appetite and experience level. If you are not sure about anything, you should seek professional advice from independent financial advisors.