Reading a quote on currency pairs looks a little like reading acronym warfare. What is USD/JPY? What about CAD/EUR? What happens when you switch them into JPY/USD or EUR/CAD or even USD/CAD and EUR/JPY?
Stepping into currency pairs trading can be quite confusing for a first-time investor in this asset. Because of this, you need to find the best way to step into currency pairs trading. It should fit your personal trading style and investment goals.
What is Currency Pairs Trading?
A currency pair is made up of one base currency, and one counter currency. The base currency is that on the left (i.e. USD/), while the counter currency is on the right (i.e. /JPY). The base currency is always exactly 1 unit of the currency (i.e. $1).
When you trade in currency pairs, you are trading in the rise or fall of the counter currency against the base currency. When the counter currency is low (say 115 JPY), you buy dollars. When it rises (say 120 JPY), you sell dollars. If you only bought and sold $1, you would get 5 JPY more. In larger amounts, you can gain much more from the difference.
That form of trade is called direct forex trading. There are many factors that influence a currency’s value. A military takeover of a government or a sudden dip of a stock index can lower currency value. On the other hand, high credit ratings and positive forecasts can raise it.
What Is The Best Way to Begin Currency Pairs Trading?
Already described in the earlier section is direct forex or currency pair trading. In that kind of trading, the investor is the one who watches the signals for buying and selling forex. Two other ways to step into currency pairs trading are social trading and options trading.
Social trading is one of the best ways to step into currency pairs trading, especially if it is your first time to try online trading. Social trading works very much like a social media platform, with some added quirks. Social trading sites usually have newsfeeds where tips and signals are uploaded by the community.
That way, you no longer need to filter through miles and miles of news articles–they are already filtered for you. Additionally, you can follow other investors trades exactly. Watch their strategies, understand how they trade, and either copy their trades manually or link your account to theirs.
Another way to enter currency pairs trading is through binary options trading on forex. With binary options trading, you trade on a prediction of the rise or fall of the counter currency in a specific amount of time. If you are correct, you add more than 50% to your capital. If you are wrong, you lose a set, pre-agreed upon percentage of your capital. While indirect, it is easier to calculate the amounts needed to trade.
Currency Pairs Trading: Treat It Like Investment
Like any other investment in stocks or commodity values, think in the long-term. Compounded, well-saved, well-invested profits will do you more good in the long run than one quick windfall in currency pairs trading. Treat your money wisely, and it will treat you well.