Many investors looking to make money in the financial markets are interested inknowing what is online currency trading and what is trading on the stock exchange in general.
In this article, we'll go over the definition of trading, as well as definitions and explanationsof various concepts around trading so you can start trading the financial markets.
Definition of Trading: What is Trading?
When we talk about the definition of trading in the financial markets, it is the same principle. Think you aretrading stocks. You are actually buying shares of a company for money. If these shares increase in value, you makemoney by selling them at a higher price. This is called trading.
But why do the shares increase in value? The answer is simple: value changes mainly because of supply and demand.The greater the demand for something, the more people are willing to pay for it. Another reason is the companies'financial reports and profits, as well as important news that affects their stock prices.
What do we mean by trading via the Internet, or in another sense, the fun of trading via the Internet?
I hope this short answer is enough to explain "What is online trading?" or "What is electronic trading?"
For a long time, financial transactions were conducted electronically only between banks and financial institutions.This meant that trading in the financial markets was closed to anyone outside of these institutions.
With the development of the internet, now anyone who wants to participate in trading can do so online.
In fact nowadays there are many online brokers that can be accessed with very small capital. These companies will provide you with a trading platform, which will allow you to connect to the market in real time, place trading orders and view and analyze live charts.
Almost anything can be traded online: stocks, currencies, commodities and a whole host of other financial instruments - at this point you don't have to worry about all that. For now, keep in mind that if you want to trade something in particular, it is most likely possible.
Thus, online trading is possible from wherever you are connected to the Internet, and you have a trading platform from one of the trusted electronic trading companies.
Currency trading
Perhaps now the answer to "What is currency trading?" Explain, but you may be wondering how can I trade currencies through electronic trading platforms? Read on to find out more.
Simply put, currency trading (forex) is speculating on the movement of currency prices by buying one currency and selling another at the same time. Currency values rise and fall relative to each other due to a number of economic, geopolitical, and technical factors.
The forex market is made up of currencies from all over the world, the multiple factors that can influence price movements make predictions about exchange rates difficult. However, like most financial markets, forex is primarily affected by the laws of supply and demand, and it is important to understand what these laws are and how they cause price fluctuations.
There are two different types of forex markets:
1- Spot forex market: This is the physical exchange of currency pairs, which takes place at the exact moment of the settlement of a transaction or after a short period of time.
2- Forex futures market: A contract is created to buy or sell a specified amount of currencies at a certain price, which expires on a future date (or in the range of future dates).
How does trading work?
There are different ways to practice forex trading, but they all work the same way: buying one currency and selling another at the same time.
Traditionally, forex trading was done through a traditional broker, but thanks to online trading service providers, you can now invest wherever you are.
Forex trading is the activity, if not a profession, of buying and selling currency pairs to anyone with a computer, mobile phone, and internet connection.
Trading is a daily and international activity. Governments, corporations, and even individuals trade currencies daily.
These exchanges take place through computer networks between traders around the world. This is the main reason why the forex or currency market is the largest and most liquid market in the world.
What is the base currency?
The base currency is the first currency in the pair, while the next currency is called the secondary currency. Forex trading always involves buying one currency and selling another, which is why they are listed as pairs.
The currencies in the pair are identified by a three-letter code, the first two of which usually correspond to the region and the third to the currency itself. The most popular currencies available to traders:
US dollar writes USD
Most traders classify currencies into the following categories:
major pairs. These are the seven pairs that account for 80% of global trade in the forex market, including the EUR/USD, USD/JPY, GBP/USD and USD/CHF pairs.
secondary pairs. They are traded less frequently and usually contain major currencies other than the US dollar. Includes EUR/GBP, EUR/CHF and GBP/JPY pairs
Weird pairs. It consists of one major currency against another currency from a small economy or an emerging economy. Includes USD/PLN, GBP/MXN and EUR/CZK.
regional pairs. These are pairs categorized by region, such as Scandinavia or Australia. Includes EUR/NOK, AUD/NZD, and AUS/SGD.
Margin Trading
Margin trading is the practice of trading online with leverage. When you trade with leverage, the available capital in your account allows you to invest much larger amounts than the base capital in your account.
But what is margin in trading?
For example, with a leverage of 1:5, buying a stock for $1000 would only need 5/1000 = $200.
This amount allocated to the transaction is called the margin. Thus, margin trading refers to the use of leverage. However, please note that although leverage can increase your profits, it can also magnify losses and should be used with caution.
Virtual Trading
You can search for and analyze stocks, determine entry and exit points, and choose order types. It is just as if you were trading with a real account.
But instead of doing these trades in the live market, you can match them on a demo account. In order to learn from your operations, you have to record all the details. You can write it down in a trading diary or use a custom spreadsheet.
By following the trading on the demo account, you make the same decisions as if you were trading with a real account. So you will need to be prepared to decide when to buy and when to sell and to analyze and use technical indicators on your trading charts.
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