What is Forex Trading?
Forex trading is the act of buying one currency while simultaneously selling another currency, with the aim of profiting from the changes in the values of these two currencies over time. Of course forex trading can also lead to losses, which makes it a risky venture and one that should be examined closely before committing any actual trading capital. One benefit of forex trading is the huge volumes traded in forex markets each day, which eliminates any liquidity issues, at least for the currencies of the largest economies.
Another benefit to forex trading is that anyone can participate with just a small initial investment. There is a tradeoff however. The small capital requirements in trading forex are due to the use of leverage when trading forex. For example, if the leverage used is 1:400, this means that an investor can control $10,000 worth of currencies with an investment of as little as $300. While this can generate profits more rapidly, it can also lead to losses more rapidly and if the traders account is small they may soon find themselves the victim of a margin call and the loss of all their trading capital.
The knowledge and skill required to successfully trade forex makes it anything but simple. Those considering forex trading should be sure that they have sufficient capital and that they are able to withstand the risks presented by forex trading, which include the potential loss of all your trading capital.
Currencies are traded in pairs and these pairs fall under three categories; Majors, Minors and Exotics.
Major Currency Pairs
The Majors are the most popular and most liquid pairs and always have the US dollar as one half of the pair. Examples include the EUR/USD and the USD/JPY.
Minor Currency Pairs
The Minors are the pairs which do not include the US dollar, but contain the remaining major currencies; the EUR, JPY and GBP. The Minors have also been nicknamed 'Crosses'. Examples include the EUR/CHF and the EUR/GBP.
Exotic Currency Pairs
The Exotics are not as widely traded as the Majors and Minors; nonetheless, we offer them here at Capital Investment Hub. These currency pairs are made up of a major currency pair coupled with the currency of a developing economy. Examples include the USD/HKD and the USD/NOK.