The Basics of Currency Trading: Part 1
Currency trading, also known as Forex Trading (Forex meaning Foreign exchange) has hit the Kenyan market like a bolt. Many entrepreneurs have taken a dive into this market and are attempting to make a living out of it. However, as many have come to realize, this is no walk in the park and a certain skill set is required to actually make money let alone to avoid losing their hard earned capital.
The main reason why people are flocking into this market is the ease of access and the implied simplicity of trading that is being marketed by the brokers. A broker is a company that links individual traders to banks. They offer you prices at which to Buy or Sell currency pairs. Currencies work in pairs, i.e. how much it will cost you in one currency to buy another. For instance It will cost you KES 80 to buy a US Dollar so KES/USD = 80.00. In Forex, the Kenya Shilling is denoted as KES. ‘KE’ stands for Kenya while ‘S’ stands for Shilling.
In this series The basics of currency trading, I will give you a walk-through of this exciting market, how it operates and how people across the globe are making a fortune out of it. But you will also need to appreciate that majority of people who start trading currencies end up losing money. To be successful, you will need to take the time to equip yourself with the right skill set to make it.
The first question we need to ask ourselves therefore is, “What is currency trading and is it right for me?” The currency market is the largest investment market in the world, and continues to grow annually. In April 2010, the Forex market reached $4 trillion in daily average turnover, an increase of 20% since 2007. To draw a comparison, there is only $25 billion of daily volume on the New York Stock Exchange (NYSE), the largest stock market in the world, located on Wall Street New York. The market is large, and until recently, the volume came from professional traders. But as currency trading platforms have improved more retail traders have found Forex to be suitable for their investment goals.
An increasing amount of stock traders are taking interest in the currency markets because many of the forces that move the stock market also move the currency market. One of the largest of these forces is supply and demand. When the world needs more dollars, the value of the dollar increases and when there are too many circulating, the price drops.
Other factors like interest rates, new economic data from the largest countries and geopolitical tensions, are just a few of the events that may affect currency prices.
Much like anything in the investment market, learning about currency trading is easy but finding the winning trading strategies takes a lot of practice. Most Forex brokers will allow you to open a free virtual account that allows you to trade with virtual money until you find strategies that work for you.