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Interested in forex trading? Here's what you need to know

by , 03 November 2015

Forex trading is about trading the world's foreign exchange market. The forex market is the largest and most liquid financial market in the world.

Its liquidity and size means there are ample opportunities for traders to take advantage of.

So how does forex trading work?

Let's take a closer look…


What is forex trading?

 
Forex trading involves trading currency pairs. You can’t trade a currency in isolation as the value of all currencies is dependent on the value of another currency in relation to it.
 
Think about when you buy foreign exchange to go on holiday. If you’re going to the US, you want to know the exchange rate between the dollar and the rand. This rates makes a difference to how many dollars your rands buy.
 
By trading currency pairs, you speculate on whether one currency is going to strengthen or weaken in comparison to the other currency in the pair.
 
The influences on the forex market are very different to that of shares, commodities or indexes. Determining movements on the forex market are interest rates, geopolitical conditions and trade relations.
 

How to trade forex

 
There are a number of ways you can trade forex. It depends on what currencies you want to trade.
 
If you want to trade the rand against major international currencies, you can use currency futures listed on the Johannesburg Stock Exchange. To trade these you’ll need to open a derivatives trading account with a stock broker.
 
On the other hand, if you want to trade international currencies, excluding the rand, you can trade them through a trading company offering forex trading.
 
Before you begin trading forex, ensure you understand what you’re doing first and the risks you’re taking on. Many trading companies offer demo accounts. These are great as they allow you to put on dummy trades to see if your strategy works well or not.
 
So there you have it. What you need to know about forex trading.
 
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Interested in forex trading? Here's what you need to know
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