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Understanding what forex currency trader is
Getting to know what forex currency trader is all about
A foreign exchange trader or a currency trader or forex trader means one and the same person who trades in currencies using the forex platform like the forex brokers South Africa. The forex traders comprise of various people including professionals who are employed to be able to trade for a particular group of clients or financial firm, but they can as well include traders who are amateurs who happen to trade for individual gain financially either to make a living or as a hobby out of it.
With forex trading, it is all about to ensure to make it closer eye on changing exchange rates constantly so that you can become successful.
What if a forex currency trader?
The forex traders are known to utilize currency exchange rates in trying to profit from trading in the foreign currencies. With the currencies rising or falling in value in relation to one another, traders normally try predicting the changes and buying or selling accordingly.
To trade in foreign currencies is known to be quite riskier than majority of forms of investing and not something where just any trader will get to be engaged. With the chance of having big profits, come the high risks of losses so it is quite important in understanding the way the market tends to market works before you will need to decide to become a forex trader.
How the forex market happens to work
The fore market or foreign exchange currency market, is known to be the largest market when it comes to financial trading. More than $5 trillion every day are traded on the exchange which is more than 25 times the volume of the global equities. Most of the currency of the world’s currency is normally traded via this large, highly decentralized marketplace with several trading centers but majority of them are located in London, Tokyo, and New York. It is what allows the markets to be able to operate on a 24 hours basis in five days of the week.
Currencies of the forex are normally represented by three abbreviations such as ZAR for South African rand, USD for the US dollar, the EUR for the euro, and the JPY for the yen of Japan. The transactions are normally quoted in pairs like USD/ZAR. The USD is involved in almost all the major currency pairs because it is the reserve currency of the world.
To be able to understand how the fore trading is able to work, you need to consider this particular example. Take for example the British pound that is abbreviated as GBP quoted at $1.1510. It denotes that you are in a position to buy about 1000 British pound for about $1,150 USD. If the asking price is at $1.1511, then it is seen that the spread is quite low, because it is the difference between the bid which is at $1.1510 and the ask which is at 1.1511.
If you are able to buy 10000 GBP at about $1.1511 then the pound happens to rise to sell price of $1.1622, you could be able to sell your position. Your profit will be 10000 times the difference which is between the price that you bought it at which is $1.1511 and the price for selling which is at $1.1662 and thus, you will have a profit of about $151.
Becoming a fore currency trader
There are three ways in which you can trade on foreign currency exchange rates.
- On an exchange which is regulated by the commodity futures trading commission
- In the off-market exchanges which are also referred to as the over the counter trades
- On the exchange that is regulated by the U.S securities and exchange commission
Once you are sure of where you want to trade, there will be a need for you to come up with a brokerage account with a reliable forex broker like forex brokers South Africa or some of the well-known forex brokers in the USA such as:
- Forex.com
- Thinkorswim by TD Ameritrade
- Interactive brokers
Majority of the large US stockbrokers normally offer forex trading also. If you are having a brokerage account already, it is possible for you to begin your forex trading via your stockbroker. In majority of cases, you will only require to fill out an online currency trading application form. If you decide to open a new forex account, then there will be a need for you to make a small deposit.
There are some brokers like forex brokers South Africawho will allow you to open an account with as little as about 100 of your base currency, though they might recommend you in depositing more so that you have a lot of flexibility and the risk management with trades.
Once you are done with opening your account, you start trading by having to select the currencies that you will be able to trade with. Currencies on the forex will always come when they are paired. With the value of one having to rise, the other pair goes down.
Most of the newbie traders need to trade only using the most widely traded currencies like the US dollar, the British pound or the euro as they are known to be the most liquid and with the smallest spreads. The spread of the fore is the charge which the specialists in trading, effectively being the middleman, charging both the seller and the buyer for having to manage the trade.
Risks of the forex currency trading
As you can read it from the above example of trade, the currency trade are leveraged highly, which can go as much as about 50 to 1, with some countries having a higher leverage. It means that, you can utilize a small amount of money to purchase currencies worth much more than what you place in it. To start currency traders might be attracted to the possibility of being able to make large trades from a small account but at the same time, it denotes that, even a small account will end up losing a lot of money.
