What is Online Forex Trading?

What is Online Foreign Exchange?

You are here most probably because you have heard people talking about earning big through online forex trading, and well, I can guess what you are thinking. Hold on… pause to understand first what it means to trade forex online.

Well, it is not rocket science; forex trading can be explained in simple terms as the process of exchanging the currency of one country with the currency of another country through an online global market.

Exchanging currencies is necessary for traders who do business across national borders. When you travel to another country, you need to exchange your home country’s currency with the foreign country’s currency in order to transact.
Just as money and stock have become important wealth-creating assets in the financial market, forex has also evolved to become one of the most profitable businesses in the recent times. So you are right, you can join millions of people who invest in online forex trading every day to increase your income.

How Does Online Forex Exchange Work?

Well, you now know what forex exchange entails, but you are wondering, how do people trade with virtual currencies? So this is how the online forex exchange system works:

Online forex trading basically entails buying and selling currencies. This may be confusing because currencies are not physical; but you can think of it as trading in shares.

The price of a currency fluctuates based on market dynamics as well as the perception and projections of the future performance of the economy in question. For example, the price or exchange rate of a Japanese Yen against the U.S. dollar depends on the economic conditions of Japan relative to those of the United States. Thus, as you buy the Yen, you are simply staking on the Japanese economy.

Think of this analogically. Consider Japan and the U.S. as two football teams, Manchester United and Chelsea. If the two teams clash in an epic match at Wembley, you may choose to place your bet on Manchester United. By doing so, you are expecting Machester United to beat Chelsea, perhaps based on recent history, form, fitness of players, and sometimes pure luck and intuition.

Similarly, when you buy the Japanese currency, you are betting on them to beat the United States, economically though.

Unlike the highly uncertain game of football, online forex trading is less risky than sports betting and gambling because you can use available information about the two countries’ economic performance as well as the sentiments of key movers in the market.

Relax, you will learn how to analyze the market through our coming lessons.

For now, familiarize yourself with the major currencies that are often traded online:

  • Euro (EUR), U.S. Dollar (USD), UK Pound (GBP), Swiss Franc (CHF), Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD), Canadian Dollar (CAD).

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