In recent decades, Forex (foreign exchange, FX ) trading has become much more popular, mainly due to the globalization of the internet. A little more than ten years ago, the population, in general, did not even have access to this dynamic market, not to mention the possibility of opening an account and trading.
Formerly, only large banks, international corporations and millionaires had access to trade in the forex market. Moreover, opening a trading account often required at least one million US dollars and sometimes more, which not many could afford. Now, more and more people are trying to make money with the help of online trading, but not everyone succeeds.
In fact, you can even start trading with one dollar. But you shouldn’t be deceived that the money will start falling from the sky right away- once you make a mistake, the result of monthly work will go down the drain, so it’s best to try your hand on a demo account, courtesy provided by almost all brokers, and only then open a real trading account with your hard-earned money.
What is Forex? Forex is short of FOReign EXchange. It is an international market for currency exchange; here you can both buy and sell foreign currency assets. The major trading currencies are the dollar, euro, franc, yen and pound. At the same time, pricing is based on demand and supply on the foreign exchange market (floating exchange rates).
The difference between Forex and classical stock exchanges is that the majority of transactions are made via the internet, and the speed of the transaction is calculated in literally seconds and the participants can only express emotions behind the monitor screen if they miss the moment of the most profitable transaction.
What is being traded on the Forex market?
First of all of course, they trade currency on the Forex market, but it all depends on the particular broker, on the instruments it offers. These can include currency, stocks of large companies, bonds, metals, indices, various goods, etc. Therefore, it is very important to choose a right, convenient and reliable broker who has a good reputation, a long history and favorable working conditions.
When you open a brokerage account and trade on Forex, you are trying to guess how the value of the currency of one country will change relative to the currency of another country. Currencies always traded in pairs. The most popular currency pairs in the forex market are:
- Euro and US Dollar, which is expressed as EUR / USD
- Pound sterling and US dollar, which is expressed as GBP / USD
- Swiss franc and US dollar, which is expressed as USD / CHF
- Japanese Yen and US dollar, which is expressed as USD / JPY.
Why is the currency of one country rising or falling in value? There are many reasons one currency to change against the currency of another in value, but the main ones are as follows:
- The general state of the country’s economy and economic factors (such as interest rates and inflation)
- Political factors
- Trade balance
- Social factors
- Government and Central Bank policies and policy changes.
Where does Forex trading take place?
Forex trading is not tied to a specific trading venue, that is, it is a foreign exchange market that operates around the clock, five days a week (from Monday to Friday) around the world. Trading participants are central banks, large investment companies, private clients and Forex brokers. The latter are the most affordable way to trade for ordinary users. Such companies are intermediaries between traders and the market; they bring their clients’ transactions to the interbank market.
Today, each of us can become a participant in this market and try themselves as a currency trader, make purchase and sale transactions with currency, metals, indices, etc. This made it possible to make a profit on the difference in exchange rates from anywhere in the world and with practically any amount of fund having only a computer and internet access.
Forex Trading Advantages and Disadvantages
Forex – the largest financial game in the world. For this reason, people are attracted to it, hoping to get their share, but not everyone is lucky. Most people lose money when trying to trade on Forex because they want to make money on Forex relying only on luck and do not learn the basics of trading and the market. What are the pros and cons of Forex trading? Main advantages include:
- Prospects – after a long period of studying (both theoretical and practical), as well as gaining rich trading experience and not just on a demo account, you can get a good income. True, not all traders come to this, but without work and knowledge, nothing will bring you wealth and Forex is no exception.
- Free schedule – you can trade at any time on weekdays (on the weekend the market closes). The only time boundaries are the important economic news that require immediate action on the trader’s side if the strategy is associated with them.
- Worldwide availability – you can trade anywhere on the planet where there is internet.
But trading also has its drawbacks:
- The most important is the risk of losing your money. Traders lose money for many reasons: failure to comply with risk management, errors in forecasts or execution of transactions, lack of necessary knowledge and experience, etc.
- Time consuming learning. To become an experienced and steady trader, you need to spend a lot of time and effort to master various trading strategies, identify patterns of currency movement, etc.
Successful trading on the Forex market
Trading on the Forex market is very risky: with very small investments you can get a big profit, but losses are also possible. Only very skilled investors should trade on the Forex market with a large sum of money – and if you are not sure that you are such, then it is likely that you need to practice more on a demo account and with smaller sums. Remember the golden rule: “Do not invest more than you can afford to lose” because there is a great chance that you will lose everything, especially in the beginning. Here are seven steps to success:
- Learn advanced investing strategies. Forex is the largest financial market in the world. It is larger than the US stock market because its daily turnover has now exceeded 4 trillion US dollars. The first thing you need to understand is that you, as a small investor, will not have any effect on the market unlike large players who make multi-million investments.
- Consult a broker you trust. You must trade through a broker who will act in your interest. Brokers who have the best trading conditions truly care about their clients’ success.
- Study world currencies and their fluctuations. Currencies are traded in pairs. Choose one pair to learn how to trade with it and stick with this pair until you have thoroughly studied it. Find currency pairs that are the most popular to reduce your risks.
- Study indices and graphs that will give you information for technical analysis. Almost every broker will provide you with a free software such as the popular platform MetaTrader 5 and other tools to help you make the analysis.
- Examine the system to recognize when to open and close a position. Analysis of market price changes is a popular method that professional traders have been using for more than a hundred years, long before creating charts and other indicators.
- As it was mentioned before, start by using a demo account and do not trade with real money. Only when you feel confident, go into trading with real money.
- Complete a trading course. You can find free and paid trading course either on your broker’s site or elsewhere on the internet or even in a physical location that you can attend.