Trading is the exchange or swap of assets. It involves one of the two actions, buying or selling an asset. In the Foreign Exchange market (FX) the assets being traded are currencies. Being a trader implicates making many transactions of the respective assets with the aim of making a profit by selling an asset at a higher price than it was bought and vice versa.
In the stock or commodity markets, you use cash to buy a barrel of crude or a share of a given company and receive cash when you are selling them. In the FX market, you are trading a currency, so you need to sell one currency to buy another. The same happens in the cryptocurrency market, where you can exchange conventional (or fiat) currencies to cryptocurrencies or crypto to crypto.
There is no central marketplace for forex and trades are conducted around the world. It operates 24 hours a day, five days a week. The FX market is one of the most liquids in the world, with an average daily trading volume of more than $5 trillion, including currency futures and options.
FX platforms, usually developed by brokers, facilitate the process of trading currencies. The key players in FX are individuals, companies, and central banks. The transaction in the retail business implicates opening a position (short or long) and then closing it. The duration of the trade could be from microseconds to months.
As national currencies, their value is affected by countries’ economic performance measured by their economic indicators and monetary policy decisions that could make a currency appreciate or depreciate. Sometimes the value of a currency could be affected by politics, weather disasters and even pandemics.
Every investment and trade involves risk. Usually, higher reward carries higher risk. That means that even when the traders’ goal is to make money, they could easily lose money.