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What is currency trading?

Currency trading refers to the exchange of currencies, where the difference in the currency value is used to make profits. It is a huge market, with traded value being higher than equities. A few years ago, currency trading was restricted to large banks and corporations. Now, advancement in technology has equipped retail investors with easy access to currency trading and even individual investors consider it to be an attractive avenue for investment.

Why trade in currencies?

Currency market has a huge level of liquidity and is open for 24 hours per day. It is relatively resilient to factors affecting stock markets and hence, can act as an effective means to expand one’s portfolio. However, currency trading is risky in nature, and requires careful planning and thorough risk-benefit analysis.[Read more]

The advantages that currency trading offers are:-

• High Liquidity: Owing to the large amount of trades conducted per day, the currency markets offer high level of liquidity. Hence, one can enter and exit the market with relative ease
• Lower costs: Owing to low level of spreads, lesser brokerage is involved in the transactions, which reduces the cost for the trader.
• Leverage: Trading in currencies futures involves use of leverage through margin which is maintained with the broker. Hence, large transactions can be executed with lesser amount of cash in hand.
• Round-the-clock trading: The currency market is open 24 hours a day, and thus, offers the convenience to transact any time of the day.