With shares and funds many savers can still do something, but with the trade with currencies, it stops for most. Yet high-profit opportunities beckon here.
Similar to shares, you can also earn money with foreign exchange. Already within a few hours, high returns can be achieved when trading with currencies. However, this also requires luck.
We explain how the by far largest financial market in the world works, what opportunities and risks there are, and how you can earn money with foreign exchange yourself.
What is currency trading?
In foreign exchange trading (Forex, FX), investors bet on rising or falling exchange rates. The exchange rate determines the amount of one currency needed to buy another currency.
Price changes are expressed in pips in foreign exchange trading and the unit of trading quantity in the lot.
Foreign exchange transactions are made when banks, trading companies, central banks, funds, and private investors buy, sell, exchange, and speculate with currencies.
Until the turn of the millennium, global foreign exchange trading was only available to professionals, i.e. banks and institutional investors such as hedge funds. Now, however, private investors can also participate in the trillion-dollar business.
Good to know: the foreign* exchange market is* by far the largest market* in the world. On average, currencies worth 6.6 trillion U.S. dollars (about 5.6 trillion euros) are traded every day. That is more than the entire transaction volume of the futures and stock markets combined.
How does currency trading work?
Even tourists leaving the eurozone participate indirectly in the foreign exchange market. This is because they sell euros abroad and buy the vacation currency. Currencies are thus exchanged around the world - and always traded as currency pairs. Each base currency you buy is associated with a so-called quote currency that you sell.
By far the most traded currency pair online is the Euro / US Dollar (abbreviated EUR / USD). USD / JPY (Japanese Yen) and USD / GBP (British Pound) follow. In addition, the Australian dollar (AUD), Canadian dollar (CAD) and Swiss franc (CHF) also play a notable role in global online currency trading.
But beware: before you engage in forex trading, you should have a certain amount of experience. In essence, exchange rates are subject to unpredictable fluctuations, which can also assume considerable proportions during the day.
Who offers currency trading?
Foreign exchange is not traded on a central exchange, but exclusively electronically on the so-called OTC market ("Over the Counter").
While banks are interconnected, private traders need a forex account to trade foreign currencies. Specialized Forex brokers offer their brokerage services with trading platforms for this purpose in Germany.
Tip: Choose an FX broker based and regulated in Europe. Even forex brokers sometimes hide black sheep.
Each broker has its own unique conditions. If you want to make sure you find a suitable provider, you can hardly avoid a forex broker comparison. According to the financial portal DeutscheFXBroker.de, these providers are well suited for beginners:
- Plus500,
- Forex Broker XTB,
- GKFX,
- AvaTrade,
- Admiral Markets.
What fees should forex traders expect?
The forex broker earns on the spread between the supply and demand rate (bid/ask) of a currency pair. In German trading, this is referred to as bid and ask rates. Due to the high liquidity in forex trading, these spreads are usually quite narrow, usually set to the fourth decimal place.
The spread depends on the currency pair, liquidity, and fluctuation intensity. The more frequently a currency pair is traded, the lower the spread.
The spread usually also covers the transaction costs, which are due for each purchase and sale. They are lower than in stock exchange trading with shares or derivatives.
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