Stocks might be the first things that come to mind when you think of investing, but when it comes to size, forex is the most popular investing platform. The largest and most liquid of the financial markets, forex activity exceeds $4 trillion each day. More than a quarter of that is conducted in the form of spot trading.
To put that into some perspective, forex trading has 20 times the average daily volume of the New York Stock Exchange, the world’s biggest market. Forex spot trades consist of a contract to trade a set amount of a currency pair at the advertised buy/sell price (known as the spot rate).
Where market volatility might make those trading stocks nervous, volatility within the forex market is what makes an exchange rate fluctuate and makes forex traders money. But, like with stocks, forex traders need to understand that with greater volatility comes greater risk.
The majority (95%) of forex trades occur between seven currency pairs. The four most popular currency pairs are: EUR/USD (euro/U.S. dollar), USD/JPY (U.S. dollar/Japanese yen), GBP/USD (British pound/U.S. dollar), and USD/CHF (U.S. dollar/Swiss franc). The last three include: AUD/USD (Australian dollar/U.S. dollar), USD/CAD (U.S. dollar/Canadian dollar), and NZD/USD (New Zealand dollar/U.S. dollar). That being said, forex traders can combine any currency pairs they like.
Unlike the stock market which has set hours, forex trading takes place 24/7. The greatest liquidity occurs when regular operational hours in multiple time zones overlap.
Currency pairs fluctuate based on volatility. Without volatility, a currency will not fluctuate. As a result, there is no bear or bull market, per se, in forex trading. There is always market volatility, and there will always be opportunities to profit.
With forex trading, a small amount of money can also give you control of a large contract. A forex broker may offer a 10-1 or 50-1 leverage. A $50 margin deposit would allow you to buy or sell $2,500 worth of currencies; with $1,000 you could trade $50,000. It might be easy to think of huge gains, but without the right risk management training, leveraging can lead to massive losses as well.
On top of that, forex is an unregulated market. As a result, there is no such thing as insider trading. In fact, the forex market moves up and down on publicly available news (geopolitical tensions, economic data, weather conditions, etc.).
Case in point: the U.S. dollar has strengthened against the Canadian dollar over the last year in large part because the U.S. economy is getting stronger and the Canadian economy is being hurt by weak oil prices.
Since the beginning of 2015, the U.S. dollar has gained 15% against the Canadian dollar. Or, the Canadian dollar has lost 13% of its value against the U.S. dollar. Has the Canadian dollar bottomed against the U.S. dollar or will it continue to fall?
Forex trading in Toronto is extremely popular but it is not as easy as it sounds. The best way to succeed in trading currencies is to have a strong foundation of the forex markets and develop a strategy that complements your overall approach to trading.
The forex experts at Learn-To-Trade.com can provide you with a comprehensive understanding of in-depth currency trading strategies and teach you how to trade forex confidently.
The leading provider of stock market training courses in Canada—including forex training—Learn-To-Trade.com is led by licensed, industry professionals who can help you make profitable trades regardless of where the markets are heading.
As the oldest financial educator in Canada, Learn-To-Trade.com Inc. has instructors who are educators for the Toronto-Montreal Exchange, through which its instructors host educational sessions for the major banks across Canada.
To discover how Learn-To-Trade.com can help you take a disciplined approach to forex trading, contact us by phone at 416-510-5560 or by e-mail at info@learn-to-trade.com.
Sources:
“Benefits of Forex Trading,” OANDA, November 23, 2015, https://fxtrade.oanda.ca/learn/intro-to-currency-trading/benefits/trading.
“Why Trade Forex: Advantages of Forex Trading,” BabyPips.com, November 23, 2015, https://www.babypips.com/school/preschool/why-trade-forex/advantages-of-forex.html.
“What are the most commonly traded currency pairs in the Forex Market?” MahiFX web site, November 24, 2015;
https://mahifx.com/support/faq/what-are-the-most-commonly-traded-currency-pairs-in-the-forex-market
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