Online trading can be a serious career, a profitable side hustle or an exciting business opportunity. Whilst forex trading can be highly lucrative, this Covid-19 Pandemic has made all the global markets more unpredictable than ever, so if you are looking to get into it, you must know all the essential information. One of the great things about the internet is that it has made all the markets accessible for anyone with a computer and an internet connection.
This article is a guide to everything you need to know about forex trading.
What is Forex Trading?
The foreign exchange market (Forex/FX market) is the market where currencies are traded, with no central marketplace. Everything is conducted electronically via computer networks between the trading community across the globe, rather than on one centralized exchange. Operating 24 hours per day, 5 and a half days per week, this particular market is incredibly active at any moment in the day, with price quotes changing constantly.
Currently, the forex market is the largest and most liquid capital market with a daily turnover of more than 5 trillion US dollars, and is considered one of the most popular ways to make money online.
How Does It Work?
The forex market revolves around a simple concept – the trading of the world’s major currencies. The most common trading pairs are EUR/US, GBP/US, CD/USD and JPY/USD, but you can trade almost any currency that you like. The information from this blog explains that when trading forex, you aim to make money by taking advantage of the fluctuation between the value of currencies. You can do this either by buying a currency that you predict is going to rise in value or selling a currency that you predict is going to decline in value.
As the exchange rate changes, profits and losses will be made accordingly based on whether you predicted correctly. With forex trading, all you need to get started is some initial capital, a device that is capable of connecting to the Internet and a reliable source of Internet connection.
What are the Benefits?
The benefits to forex trading rather than trading on the traditional stock market include:
Due to the high liquidity of the forex market, entries and exits for money are very open, which benefits forex traders around the world and makes it very easy to start trading.
24-hour Trading Times
Forex trading takes place round the clock – 24 hours per day, 5 and a half days per week, giving traders a lot of flexibility in terms of timing. You can trade forex at night after work or throughout the day if it is your primary job.
Forex trading allows you to make bigger trades than the amount that you have invested, helping you to make sizable gains. For example, $100 in your account can hypothetically be traded up to $1000 at a time.
Trading forex only costs you the spread which is the difference between the bid and ask prices; without additional commissions that are common in trading stocks.
What are the Drawbacks?
As well as these benefits, there are some drawbacks to forex trading:
Leverage is a double-edged sword when it comes to forex trading, and while it can be taken advantage of to make decent gains, you should be mindful about the consequences of wrong investments.
Before getting serious with forex trading, a proper understanding of its terminology and mechanics is required for success. Because of this, demo accounts are offered by various forex brokers to help you practice and get familiar with the way things are before taking the next step.
With forex trading, constantly staying on top of the news about what is going on in the world is key to success, because even minor delays can cost you your investment. Whilst some people thrive in a fast paced environment, other investors find it overwhelming.
Scammers are everywhere, especially in a market that is not as regulated as the regular stock market so you must do your research about the firms and their regulations that you plan on trading with.
While the fundamentals of trading forex might seem rather simple, the challenging aspect of trading comes with evolving from a beginner into a successful trader. Running a long-term forex trading business with the goal of consistent profitability requires hard work, experience and a certain element of fortune. Take your time with learning the skills required. Remember that you are just getting started, so never get ahead of yourself. Make slow but steady progress on your forex trading journey, pick up new knowledge along the way and have fun in the process. Follow this guide and the money will come.