How currency trading works
In currency trading, currencies are quoted in pairs. Take the most popular currency pair, EUR / USD, for example. The first currency (Euro in this case) is called the base currency and the second (USD) is called the quote currency. When you trade a pair, you wonder if the base currency (EUR) will strengthen or weaken against the quote currency (USD).
Currency prices are generally quoted to the nearest five decimal places. The most important decimal point to watch out for is the fourth, also known as the pip. This is the number of pips we use to calculate profit and loss.
Currency positions are traded in specific amounts called lots, which is equivalent to 100,000 units of the base currency. It is also possible to trade in smaller quantities – mini, micro and nano lot sizes, corresponding to 10,000, 1,000 and 100 units respectively.
What influences currency prices?
There are three key factors that affect prices in the currency market.
Economic reports have a big effect on currencies. For this reason, the economic calendar is a trader’s best friend. It includes all scheduled news events and data releases, listed by importance.
Currencies are sensitive to political uncertainty caused by events such as elections, referendums and political scandals.
Natural disasters, such as tsunamis, earthquakes and hurricanes, can cause significant volatility in the price of the currency associated with this region.
Who trades currency pairs?
Besides banks, financial companies and professional traders, anyone who wants to profit from the daily movements of the market can access currency trading. The currency market is a decentralized global market. This means that there is no physical place where traders meet to buy or sell.
In such a market, it is the technology that enables traders all over the world to deal directly with each other. Simply put, currency trading is a market without intermediaries. All you need to participate in this fascinating and fast paced market is also a trading account with a reliable broker.
Benefits of currency trading
Currency trading has become one of the most popular markets for trading. Here are the top three reasons why so many traders choose it.
Available 24 hours
From Sunday to Friday evening, the currency market is available for trading 24 hours a day. This makes it ideal for traders who can only trade the markets part-time.
When you trade forex online, you can control positions that are much larger than your capital by using leverage. This can lead to both larger gains and losses, making risk management a key part of any currency trading strategy. At ThinkMarkets, you can choose to trade currencies with leverage up to 500: 1.
Low starting capital
Unlike trading on an exchange where the size of the contracts is predetermined, when you trade currencies online, you decide the size of your positions. This allows traders to start with the capital they feel comfortable with. At ThinkMarkets, you can start participating in the fascinating currency markets with no minimum deposit requirement for a Standard account and only $ 500 minimum deposit for a ThinkZero account.