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Online Trading for Beginners

  If not before, then likely during the pandemic, you heard about friends or colleagues currency trading using an online broker. Trading CFD...


If not before, then likely during the pandemic, you heard about friends or colleagues currency trading using an online broker. Trading CFDs in the capital markets requires a little bit of knowledge that you can get by searching the internet or finding a resourceful online broker. Trading CFDs requires that you formulate a strategy that can work for you over the long term.You want to have a conviction in your CFD investments and a way to generate accelerating wealth.  Currency trading as CFDs requires macro knowledge, such as country growth and inflation. You also might need to track interest rates in different countries. 

What is the Currency Market?

Currency trading is the process of exchanging one currency for another. This currency trading happens all day, every day. In fact, 6.6 trillion in notional value of currency trading took place in 2019. There are thousands of reasons why people trade currency. For example, if you are going to another country on vacation or for a business, you need to exchange your currency for spending cash. Even if you purchase items on a credit card, your transaction will be placed in the local currency. Your credit card company will perform a transaction to convert that currency into your home currency.  

If you are a corporate treasurer and the business you work for has operations worldwide, you will constantly be exchanging money. If you make money overseas, you will eventually return that foreign capital to your home country's currency. While you might not transact a currency trade that is for exchange immediately, you might perform a forward transaction for a date in the future.

Banks are constantly exchanging currencies. They might do this because they are transferring funds to different operations. Many banks engage in currency trading as a business to market-make the product. Market-making is the process of providing an exchange by which customers can buy and sell currency pairs. Banks also loan money to customers all over the globe and, at a time, will need to exchange liabilities into different currencies. The upshot is that banks and brokerage companies are constantly currency trading, moving money around the globe.

Lastly, many hedge funds, pension funds, mutual funds, retail investors, and banks are taking speculative positions in currencies, moving average markets based on their view that it will move in a specific direction. 

What Currencies are Traded Most Actively?

Currency trading takes place nearly 24 hours a day, 6 six days a week. Actively traded currency trading is slightly more restricted, opening Monday morning in Australia and closing at 5 pm in New York on Friday. Local currencies will most actively trade when the country is open for business. The most actively traded currency is the U.S. dollar which is seen as the world's reserve currency. The most actively traded currency pair is the U.S. dollar versus the Euro. The Euro, the Japanese Yen, the British Pound, the Swiss Franc, and the Australian Dollar are considered major currency pairs when traded versus the U.S. dollar. These currency pairs provide the most liquidity in the currency trading markets.

Opening an Account and Using a Demo

One of the best ways to start currency trading as CFDs is to pick out a broker. Look at their education section and open a demonstration account. Here you can trade the market and test drive the platform without risking any capital. You can test trading strategies and the broker's execution module to make sure you are comfortable with the process. Look for intuitive platforms and customer service that will help you by phone, chat, or email. The upshot is that currency trading requires a little bit of thought, but all the tools you will need to trade well are available.