What is currency trading?
Currency trading is the practice of buying or selling currency pairs in the foreign exchange market at a specific exchange rate. The online currency trading market is called the Forex market, which is the largest and most liquid market in the world and is one of the largest markets in size in this market. In one day in 2019, nearly $6.6 billion was reached before one currency traveled with another, where one country's currency can be used to buy another country's currency, which happens poorly. Currency trading in general revolves around the belief that a currency will fall or rise.
How can you benefit from currency exchange rate fluctuations?
Currency exchange rates fluctuate around the clock and traders take advantage of these fluctuations by monitoring whether the currency falls, rises, or even stabilizes. For example, a person has $1,000 worth of money, if he uses it to buy Euro currency, after a period of time the Euro exchange rate rises. Depending on the appreciation of the Euro, the person decides to convert back from Euro to Dollar. The transfer value was $1010. This means that by taking advantage of the rise in the value of the euro, the person gained $10.
What are the risks of currency trading?
Currency trading involves fairly high risks, and the most important risks of currency trading that should be avoided as much as possible are the following:
Interest rate risks Interest rates and prices also affect the exchange rate of currencies in countries of the world. If interest rates are raised in a country, its currency will become stronger due to investments coming into that country’s currency. A stronger currency will give rise to higher returns and profits and lower interest rates. Conversely, the value of the currency depreciates.
Counterparty risk: The counterparty to a financial transaction is a company that provides an asset to the investor, so the risk in financial transactions such as forex trading is often defaulted by the trader or broker, and spot exchange rates and weak futures on currencies are not guaranteed by stock trading.
Country Risk: It is possible that countries may suddenly impose restrictions on the sale of certain currencies so that trading in that currency stops and thus the trader can suddenly suffer huge losses.
Transaction risk Transaction risk is defined as the exchange rate risk associated with the time difference between the beginning of the contract and its settlement, as fluctuations in trading prices occur every hour, leading to large fluctuations in the previous exchange rate that can lead to settlement, and this risk increases as the time difference between the contract increases. And settled it.