Today, currencies have been topping others are falling. The foreign exchange market is gaining popularity inn the world. Foreign trade is on every business news headlines. Most of you think it just a bunch of figures on the table. So before you get on board, what does it mean, how does it work, and most importantly, what are the DOs and DONâ€™Ts in this trade that has flooded the world market. In other words, what are you supposed to have at your finger tips? Now pick up your pen, take your note book, and start taking these essential notes.
What is Forex Trade
To begin with, this is the process of buying one currency while selling another with the main objective of making profits. As mentioned earlier, currency values can fall and rise. Why ? Because these currencies are competing against each other due to a number of factors that will be discussed later on.
How does it work
If you think one currency will increase in value against another currency, then you buy that currency that will increase in amount. For example, you have seen the labels like EUR/USD in banks or financial institutions. EUR is the â€baseâ€™ currency and USD the â€counterâ€™ currency. That represents the number of US dollars that the Euro can buy. The same goes for USD/EUR, only that this time this represents the number of Euros which is now the counter currency, the US dollar (Base currency) can buy. Okay, now back to the trading, for instance if the US dollar will increase in value against the Euro, then you buy the US Dollars with the Euro. Upon the rise of the exchange rate, you sell the US dollars back and make your profits. It is very possible that you can make as high as billions of dollars, Euros, Rands, depending on the currency you are trading with of profits. But that comes at a high risk since you could make loses.
Risks Involved in Forex Trade
Its important to note that forex trade is the largest market in the world and involves risks just like any other investment strategies. But what is a business without risks? No business at all. So, lets pen down the risks for you:
Trading with money that you cant afford to lose
Dealing with quark or fraud brokers
You don’t do constant regulations to find the right broker
Losing all your money
Benefits of Forex Trade
Forex is a 24-hour market, all forex is quoted in terms of one currency versus another, there is no central marketplace for the foreign exchange, and trading is done electronically via computer networks hence easily accessible to all traders around the world.
Lastly, you have to acknowledge the fact that foreign exchange or Forex Trade carries high level of risks, and may not be suitable for everyone. Therefore before you decide on embarking on this trade, you should carefully and thoroughly do your research well. That is to say, you should consider your investment objectives and plans in general, position in terms of experience, and your enterprenual skill like willingness to risk.
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