The currency trading market, more commonly referred to as the foreign exchange (forex) market, is the biggest in the world and one of the most exciting for investors. For a long time, the major participants in currency trading used to be institutional investors and large financial firms, largely because they had the resources and investment capability. However, with the advancement of technology, even small-scale investors can participate in currency. There’s a lot more information available to individuals and investors to help them make decisions and invest.
For many individual investors, all that’s required to start trading is access to the internet, a broker account and knowledge of how forex trading works. For those who are interested in current market trends like Ali Seytanpir, trading in forex can become a rewarding endeavour that opens the door to many other investment opportunities.
Unlike the stock market where an investor can purchase or sell a single stock, forex trading is done in pairs. What this means is that an investor has to purchase one currency and sell another. There are various sized lots through which currency is traded. A micro lot represents 1,000 units of a currency, a mini lot represents 10,000 units, and a standard lot represents 100,000 units.
A pip in currency trading stands for “percentage in point”, which means it stands for the smallest increment of trade. Since prices in forex trading are quoted to the fourth decimal point (1.6000, for example), a change in the fourth decimal point would represent one pip. The only major currency that is exempt from this rule is the Japanese yen since it is quoted to two decimal places.
Retail traders or beginners often start trading in micro lots, because one pip in a micro lot is only a 10-cent move. Being such a relatively small figure, it makes it easier to manage losses for an amateur trader. In a mini lot, a pip can equal $1, for example, if the base currency is in dollars, while a pip in a standard lot can equal $10. By trading in micro or mini lots, small-scale investors can manage potential losses much more easily, since a busy day of trading can result in as many as 100 pips.
The bulk of currency trading in the world is confined to 18 currency pairs, a stark contrast to the thousands of stocks available in equity markets. While some traders deal in exotic currencies, the eight most common are the U.S. dollar (USD), Canadian dollar (CAD), British pound (GBP), Euro (EUR), Australian dollar (AUD), Swiss franc (CHF), Japanese yen (JPY) and the New Zealand dollar (NZD). While no one will say forex trading is a walk in the park, having fewer trading options makes management easier.
The core reason for the existence of the currency trading market is to allow the exchange of one currency into another for large corporations that require multiple currencies to facilitate operations. For example, a multinational corporation may require foreign currency to pay staff based in different regions, or pay for goods and services procured from foreign vendors.
In a typical stock market, investors who trade in options or stocks make use of a broker, who acts as an intermediary in the transaction by taking the order and executing it according to the investor’s wishes. The broker earns a commission for acting in this way. In the forex trading market, there are no commissions. The forex firms that investors interact with are actual dealers, not brokers. Unlike brokers in a stock market, dealers take on market risk by becoming the counterparty to the transaction.