Forex Trading 101: Buying and Selling
FOREX trading has created a buzz that most people can't wait to learn about. The profitability that FOREX trading promises is one of the key factors that interest many speculators.
Many home-based FOREX traders are small-time traders who have the basic know-how. These folks are generally private citizens who wanted to earn some profit through investing and trading currencies through the internet.
Veteran traders would say that FOREX trading is the most profitable market compared to other markets. Previously, only the largest banks and financial companies have the opportunity to trade currencies across the globe. But the power of the internet has changed all that. Many people who wanted to make some profit can learn and become FOREX traders.
Before delving into the Buying and Selling aspect of the FOREX market, a speculating trader should familiarize himself of the benefits of currency trading and the five major currencies in the market.
As a trader, you can do business in the market without having to worry about broker's fees and other miscellaneous charges. There are also no SEC or NFA fees and no clearing fees as well. The FOREX market's five major currencies are the U.S. Dollar, Japanese Yen, Euro, Swiss Franc and British Pound. Due to the high transaction and exchange of these currencies, more than 70% of the North American market trades these top five currencies. Other currencies that are traded in the FOREX market are the Australian, New Zealand and Canadian Dollars, which make up approximately 4% to 7% of the total volume in the market. All the aforementioned currencies comprise the vertebral core of the FOREX industry.
In the FOREX market, the idea of Buying pertains to the purchase of a specific currency pair in order to open a trade. When a trader buys a currency pair, he expects its price to increase in the long run; thus the object of buying a currency pair at the lowest price possible in order to sell it at a higher price in the future.
Selling Short is when a trader opens the trade by selling a specific currency pair that he predicts would lose value in a certain amount of time. If his prediction happens, he will buy it back based on the current (lower) price and will sell it again based on the previous (higher) price. The profit gained by the trader is the difference between the prices of his trade.
Currency trading may look complicated and tricky especially for a speculating newbie. Learning the basic knowledge of FOREX trading is interesting since it involves making profit. Surely it takes no time to dive in to this new-found money-making career once a newbie trader understands the ins and outs of the FOREX market.