Online currency trading
Online currency trading allows you to make money in the most liquid market in the world. None of the markets can match the foreign exchange market in terms of the trading volume. The daily turnover of the Forex market is $ 5 trillion – almost three times more than the trading volume on the global stock market.
Fundamentals of Currency Trading
When trading currency pairs, you acquire one currency at the expense of another. For example, in the EUR / USD pair, the first is the base currency, the euro, and the second is the quote currency, the US dollar. Accordingly, you buy euros for dollars.
A currency pair is always considered as one whole since trading involves the exchange of one commodity for another. It is impossible to buy Euros for Euros – it doesn't make sense. In our example, the exchange goods are EU and US money. Trades are always made with a currency pair, not one of the currencies.
Suppose the EUR / USD pair is being traded at 1.15345. This means that € 1 is worth approximately $ 1.15. The euro is more expensive than the US dollar and to buy one euro we need to pay a dollar and 15 cents.
A few basic concepts of foreign exchange trading
Major currency pairs
Forex traders most often deal with six currency pairs, or the main currency basket: USD / CHF, USD / CAD, AUD / USD, etc. These are the most popular currencies circulating in countries and regions with developed economies. As a result, the exchange rate of the major currency pairs fluctuates during the trading session depending on current political events and current financial reports. AvaTrade guarantees you low spreads for trading the main currency basket. Good reason to start working with us!
Minor currency pairs
Pairs of currencies that are less frequently traded are considered minor. These include everything except the six basic and several exotic pairs. These are less liquid pairs – not many investors are willing to buy them. Minor currency pairs have wider spreads. AvaTrade has a wide variety of minor currency pairs available to you.
Exotic currency pairs
Exotic pairs include emerging market currencies. When trading exotic pairs, you will face the additional difficulties typical of markets with volatile economies. Usually, exotic pairs are illiquid, unpopular with traders, and have wide spreads. Exotic pairs include currencies such as the South African rand (ZAR), Hong Kong dollar (HKD), Mexican peso (MXN), and several others.
We have tried to give you a basic understanding of foreign exchange trading. You are now ready to earn money by trading major, minor and exotic currencies.
The advantages of the foreign exchange market
To speculate in the foreign exchange market or to hedge a trade, it is best to first understand what the foreign exchange market is – and what characteristics it has. The Forex market is the largest market in the world with the highest liquidity.
Trading in the foreign exchange market takes place in real-time with various currencies that exist in the world. Currency rates are variable for most currencies, which generates interest from investors. The foreign exchange market is a global market that trades 24 hours a day, 5 days a week.
How to understand the foreign exchange market and understand its operation? Take a look at our specialized training courses.
How the foreign exchange market works – volatility
During the day, the value of a currency against another currency may vary depending on supply and demand, under the influence of economic, social, or political factors. In general, the exchange rate reflects the economic conditions of both countries. Frequent fluctuations of currencies in the market represent the potential profit of a currency trader.
The more severe fluctuations occur in a currency pair, the more interesting it is to use strategies such as scalping, high-frequency trading, and other short-term trading strategies of the foreign exchange market. The interbank foreign exchange market is one of the most volatile markets in the world.
But volatility requires attention, especially if you trade Forex with leverage: your potential profits can be higher, as can your losses.
Forex trading for beginners – an example of investing
To make money in the market from currency fluctuations, you must take a position in the direction of the asset's movement. You can trade almost any currency in the world, but most likely, as a beginner, you will be looking at major currency pairs. Currencies are traded in pairs and you always buy or sell the first currency of a pair:
The long position in Eurodollar
If you think the euro will rise against the dollar, you can buy EUR / USD. The euro must rise against the dollar for your position to be profitable.
Selling a Eurodollar position
Otherwise, if you think that the euro is depreciating against the dollar, you can create a sell order on EUR / USD in the hope that the euro will fall against the dollar.