Currency trading more popular than ever
Currency trading is now more popular than ever. If you are going to invest in currencies you use one currency to buy another currency. If then the currency you are buying increases in value you earn money. But how does currency trading actually work and how can you too make money with trading currencies?
Why currency trading is more popular than ever?
- You don’t pay commissions: this allows for profitable trading even with little money
- The foreign exchange market is the largest market in the world: therefore it is very stable
- The foreign exchange market often moves through fixed patterns and is relatively predictable
- You can make money when exchange rates fall as well by going short
- Use orders to easily manage your strategy and maximise your profits
How can you trade currencies?
Trading currencies is actually pretty simple. The only thing you need is a free account with a broker of choice. With a broker you can easily buy and sell currencies and with the ability to trade with a demo account or a free bonus you can try it without risks.
How does currency trading work?
A currency itself cannot increase in value, because a currency is what indicates the value of something. Therefore currency trading is about interrelationships. An example of an exchange rate is the value of the euro reported in dollars, this combination is called a currency pair and is denoted as EUR / USD.
Hereby it is possible to both go long and go short. If you go long you predict the exchange rate of the euro against the dollar to rise, while a short position implies that the euro against the dollar is decreasing. Once you become familiar with analyzing graphs and you are able to recognize the different patterns you can absolutely make a lot of money with trading currencies.
Trade currencies successfully
The exchange rates of currencies are influenced by numerous factors including inter alia: the policy of the central bank, the balance of payments, the economic situation in a specific country. Even on a smaller scale the exchange rate is continually influenced: when Panasonic receives profits from the United States in dollars they probably exchange them (in part) for the Japanese Yen. Because US dollars are sold and the Japanese yen are bought, the price of the Yen against the dollar rises.
Obviously, as a small trader or investor you barely affect the exchange rate and therefore there is a certain degree of stability in the foreign exchange market. The price moves with regularity in predictable patterns that clearly show upward or downward trends. Besides, it happens quite often that the price moves mainly between two price levels.
Although it is virtually impossible to follow and interpret all news on the currency market, it is possible to recognize general price movements like in the picture above. Once you recognize these movements and patterns you can open positions with more confidence and certainty, increasing the chances to make profits. If this is the case you can undoubtedly make money with currency trading.
More information? Learn how to trade successfully in our Plus500 trading tutorial