Buying and selling currencies online
Also called the ‘Foreign Exchange’ market or ‘Forex’, the currencies market is a highly interesting market for individual investors.
It enables speculation on the exchange rate of currencies between themselves and thereby the opportunity to make profits on the rise and on the fall.
Definition of the Forex:
The currencies market is more generally called the ‘Forex’. This term comes from an abbreviation of the term ‘Foreign Exchange’, meaning the market for exchanging foreign currencies.
When we consult the currencies market, we cannot consult the rate of a single currency, we have to look at the rate of a currency pair. For example, if we look at the currency pair EUR/USD, this corresponds to the exchange rate of a Euro quoted in U.S. Dollars. To put it simply, if the EUR/USD rate is 1.25 this means that a single Euro equals 1.25 U.S. Dollars. This quotation is expressed in ‘pips’.
The operation of the currencies market:
The exchange rate of one currency as compared to another is fixed according to different criteria which basically depend on the proportion of buyers as compared to the number of sellers of a currency pair.
When speculating on the currencies market, we can either buy a currency pair, which means we believe its rate will rise, or on the contrary, sell it, in which case we believe its rate will fall.
To summarise clearly, when we buy EUR/USD, this means selling U.S. Dollars to buy Euros. On the contrary, if we sell EUR/USD, we sell Euros to purchase U.S. Dollars.
Advantages of the currencies market:
As indicated in the introduction, the currencies market is a highly advantageous market for traders due to:
- Its strong liquidity: it is possible to invest small amounts as well as large amounts, even up to several million dollars on the market due to its high liquidity. The currencies market is the largest market in the world and accounts for nearly 3,000 billion transactions every day.
- Its continuous quotation: The currencies market is accessible 24h/24, during five working days a week. It is therefore possible to complete transactions at any time.
- Its leverage effect: When trading in currencies, you can benefit from the leverage effect that multiplies the profit by a ratio ranging from 100 to 400 of the profit amount, however this is also applied to a loss.
- Its low fees: The majority of intermediaries that enable you to trade on the Forex do not deduct commissions. They earn money through the spreads that correspond to a slight difference between the true price of a currency pair and its sell or purchase price.
What are the important financial places and when are they open ?
There are various major financial institutions, some of the most important being the London market, that of New York and also Tokyo. There are also markets in Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. The number of markets throughout the world means that the Forex market is constantly open from Monday to Friday. The opening of the market takes place in Sydney and it closes in New York, therefore you can trade 24/24.
Thanks to the online trading platforms you can therefore trade continuously on the foreign exchange market without worrying about the opening times of each individual financial institution. However, the opening times can give you good indicators as to which times we can see more movement and, to the contrary, when variations are weaker.
What makes the currency prices change ?
As with all the markets, it is the difference between the supply and demand that enables the price of a currency to rise compared with another. The more a currency is purchased so the more its value increases and the more it is sold, the more its value falls. However, one must take note of these elements for both currencies involved in each pair.
The currencies market is a very competitive market as it is not possible for operators to intervene in the currency exchange rates with the aim of modifying them. It does happen fairly frequently though that governments make use of announcements to indirectly change the trend of a currency by inspiring doubts or hopes in the investors.
What currencies can be traded on the Forex?
The Forex is the market where all the currencies of the world can be exchanged. It is possible to trade any currency, both national and international. However, the pairs of currencies offered by the online brokers vary from one platform to another. The majority of brokers enable trading in all the major currencies.
The currency pairs most exchanged in the world are those involving the American dollar for example EUR/USD, that is to say the euro/dollar pair. It is important to note that the prices associated with each pair show the price of the pair to buy and that to sell in that order at the same time.
You can also trade in more exotic or less popular currencies that can equally offer some very profitable opportunities.
Forex brokers for buying and selling currencies online:
The best way to speculate on currencies online is undoubtedly by passing through a Forex broker, an online broker specialised in this sector. These brokers offer simple but effective trading platforms to their traders, thereby enabling them to place buy and sell orders from their homes simply by using a computer connected to the internet.
The only thing you need to do to start buying and selling currencies online is to register with a broker and create your trading account with an initial deposit.
You will thereby be able to access a trading platform through your broker with all the functions such as charts, different orders and tools to assist with your decisions such as trading signals or technical indicators.
How to choose the best online broker
The choice of an online trading platform is also an important factor. On our website you can compare the different brokers, means of payment, the best broker’s bonuses, their advantages and disadvantages. To begin, it is recommended that you make up your own mind using the demonstration software available from the majority of brokers. This will enable you to get used to the trading interface and evaluate the simplicity and so see whether a particular platform is appropriate for you.
When you have made your choice, it would be best to start by placing small amounts in order to familiarise yourself with the market. It would be a shame to lose a lot of your investment through a lack of experience.
Finally, keep in mind that you should set yourself limits to ensure you are not susceptible to investing capital you may need.
Among the numerous subjects that we cover on this website you will find precise answers to all your questions.
How can you subscribe to a trading platform?
Registering with an online trading platform is very easily done and takes only a few minutes. Firstly though you will need to choose the broker you will use to make your transactions and then fill out the simple subscription form.
Of course, before being able to make money through your speculations you will need to make an initial deposit on your trading account. This deposit can be made using various methods of payment such as a credit or debit card, bank transfer, or using a PayPal or Moneybookers (Skrill) account.
Once you have placed your money you will be able to use it freely to take positions on currency pairs, or other assets, on the rise and on the fall. Your positions will then be closed at the time of your choosing when you are happy with the profits generated.
The different spreads according to the broker
According to the broker, you will have the choice between fixed spreads and variable spreads. But the spreads also vary according to the liquidity of the currency pair traded. In fact, the more liquid the pair, the lower the spread is. This is why the EUR/USD currency pair is the cheapest on the market because it is traded by many traders. On the contrary, if you decide to trade a rarer currency, the spread will be inevitably larger because of the lesser liquidity.
But another factor enters into consideration for the spread definition: The volatility of the currency treated. Indeed, a strong volatility will generate stronger spreads than a weaker volatility. The higher the variations in the pair price during one day, the higher its spread as this currency pair will enable you to gain more money in less time.
Variable spreads versus fixed spreads
As mentioned previously, some brokers propose variable spreads and others fixed spreads.
The advantage of fixed spreads, of course, is that they allow you to know precisely in advance how much the transaction will cost you. This advantage is especially interesting when economic events strongly affect the trend and offer a strong probability for benefits.
As for the variable spreads, they can change during the day and are often according to the indicators and their influential strength on the currency pair traded. According to the market conditions, that is to say the volatility and liquidity, these spreads can in fact increase or decrease in a more or less pronounced manner.
When and how are the spreads charged?
You pay your spread only at the time you take a position. So, the spread you will pay is the one noted at this precise time. In the case of variable spreads this means that even if the spreads increase while you trade, you will only pay that indicated at your purchase.
The amount of the spread is directly included in the price of the lot. Of course, the spread indicated corresponds to one lot and so is multiplied by the total number of lots.
Although most of the brokers do not take supplementary fees, some charge for the withdrawal or deposit of money or even the subscription on the trading platform. To avoid this type of annoyance, you should verify the general conditions of the site concerned.
How to buy and sell currencies online?
Let us now look closely at the way currencies are bought and sold online. The foreign exchange market in fact operates slightly differently from the other markets such as the stock market. Here you do not speculate on the price of a single asset but rather on the rate of a ‘currency pair’.
This rate actually corresponds to the exchange rate of one currency against another. For example, with the EUR/USD pair, the rate expresses the exchange rate of the Euro in American Dollars. If this rate is 1.50 pips this means that one Euro is equivalent to 1.5 U.S. Dollars.
By buying or selling a currency pair, you are therefore speculating on the rise or fall of the related rate. Let us imagine that you take a buying position on the EUR/USD pair at a rate of 1.50 pips for €100 and you use a leverage effect of 1:200. If you resell your currency pair at a rate of 1.60 pips you will profit from the difference in pips, multiplied by the amount of your investment and the leverage effect applied, that is: 0.10 X 100 X 200 = 200. You will therefore make a profit of €200.
As you may have understood it is actually quite easy and fast to make profits by investing in foreign currencies.
Why follow the currencies rates in real time?
Although it will be unlikely for you to want to capitalise by speculating on currencies rates at any time throughout the day, particularly if trading is complementary to your main professional activity, having the possibility of following the movements of currencies rates in real time does offer certain undeniable advantages.
In fact, by following the trends in real time you can anticipate advantageous opportunities and take position at the right time.
How to access currencies rates in real time?
There are various solutions available that enable you to follow the currencies rates in real time. In particular, you can use websites that are specialised in finance, or simply follow the charts available through Forex brokers.
Indeed, on the majority of the trading platforms you will find real time charts that are also available for smartphones or tablets.
Speculate in real time on the foreign exchange rates:
The Forex brokers enable you to speculate on the exchange rates of the different currency pairs using a computer or a tablet. Start investing now and make some major profits.