Trading Currencies

Profit and loss can be realized by selling currencies that are vulnerable to drop in value against another other major currency. Similarly, buying currencies which have a tendency to rise in the market against any other major currency can enable a trader to again gain profit (loss).

When a trader buys a currency at a particular rate and intends to sell it at a higher rate this is called a ‘long’ position and when he/she sells at a rate and intends to buy when the rate falls is called a ‘short’ position.

Diagram illustrating how profit is generated on opening and closing positions. When it is contemplated that the market is expected to move downward, the position gets closed. There is a significant risk factor to be accounted for in this trade.

The value of one currency with respect to any other currency shows the economic stability of that country. Trading currencies in respect to the change in political situation is reactive whereas trading with respect to anticipated occurrences is speculative. Generally, forex trading is carried out by sheer anticipation about the shifting of currency rates.

A trader can both opt for a conservative approach and liquidate positions quickly using limit and stop orders to control risks which benefit from the slightest price changes or go for a more risky approach. A trader places a limit order to make certain a position is established once a price level is attained in the market. (Under unpredictable circumstances in the market a limit or stop order might not be executed by the broker at the specified rate given by the trader but we attempt to honour up to 10 lots in size of limit and stop orders.)

To limit loss on a particular trade a stop order is placed to automatically liquidate a position at a chosen price level. A trader might profit hugely by even the slightest change in daily currency rates if he/she places orders in respect to resistance levels and technical support.

Effect of time factor on currency trading throughout the world affects traders