Ever wondered what Forex is? This article breaks down basic ideas about forex. Read on to understand what forex is, how it works, and how you can start making money.
What is Forex?
Forex — foreign exchange — is an international financial market where the exchange of currencies takes place. Only central banks, large-scaled commercial banks, and currency exchanges and brokers can perform operations on this market.
This market operates 24 hours a day, 5 days a week, and has a high turnover; As a result, traders can buy/sell foreign currencies in a fraction of a second. On the other hand, Forex is far more stable if compared to the stock market. The combination of these factors makes Forex a great place to start trading.
How Does Forex Work?
The most vital thing about Forex is the price fluctuations. Macroeconomic indicators are the major factors influencing currency ratios in the Forex market, primarily interest rates and other economic data. In addition, speculative participants widely apply a technical market analysis approach.
Say the Euro is $1.15 right now, an hour later, the price may either drop or sky-rocket — no one knows for sure what kind of change a currency pair will experience. The value of one currency expressed in another is called a quote. In other words, the pair’s ratio affects how much money a trader can make on Forex. Market participants make money on the difference of quotes.
Every quote puts a point on a real-time trading chart. The system automatically connects the point to the previous mark, forcing professional traders to monitor the graph changes. The main goal of any successful trader boils down to spotting the best trading opportunity. For instance, traders can analyze the charts to map out an entry and exit plan.
One of the most remarkable features Forex has to offer is leveraged trading. When opening a deal, the brokerage company adds its own additional funds to your funds. The size ranges from 1:1 (when you trade exclusively on your own money) up to 1:500 (when for every dollar you have, the broker adds another 500). Brokers also allow fractional lots. For example, the standard minimum transaction size is around $100,000. However, many brokers approve transactions with a tenth or a hundredth part of this sum.
How Can You Start Trading Forex?
So how can you start trading forex? Happily, there is no need to go somewhere; you can start making money from home. Follow these three steps to get started with Forex trading.
- Choose The Best Forex Broker. You can purchase and sell currencies right from the comfort of your house, Yet, you need a third party to get started — this third party is called a broker. You can find a dozen of prominent brokers by a simple search. The main criteria would be safety. Always bear in mind that your broker must comply with any official regulations. For example, if you want to trade derivates, you need a derivative-compliant broker.
- Open And Fund The Account. Once you’ve settled on a broker, you need an account to get started. Fund an account via a credit/debit card or use services like PayPal, Skrill, etc.
- Start Trading. To get traction on Forex, you can start with a demo account. Almost any Forex broker can provide you with a free, virtual account to test some trading strategies. To put it simply, you can take a shot with Forex without any risk for your pocket.
Trading on Forex, like on any other market, you put your capital at risk.
Forex is a financial market where you can both earn and lose money.
To enhance your chances, you have to understand the principles by which the currency exchange generally works. On top of that, you should analyze the countries whose currencies you want to trade, learn how to read charts, forecast the situation on the market, calculate exchange rate movements, etc. If you’re going to start off on the right foot, you can check our educational materials.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.