WHAT IS FOREX TRADING?
Forex is an abbreviation for foreign exchange. Therefore, forex trading refers to the exchange of different world currencies. The main aim of forex market is to ensure that the process of exchanging goods and services among nations run smoothly. Also called the currency trading market, the forex market is the leading and largest market related to finance. Participants in this market can either be individuals or organizations like brokerage firms and banks.
HOW DOES IT WORK?
The logic behind forex trading is to buy currencies that will increase in value in the near future and then sell them for a profit. Fluctuations in currency value can offer a chance to earn profit. That is, if the value of a currency is low, you can purchase it and then sell it later when the value increases. Alternatively, if the value of a currency is high you can sell it and then buy it later when its value depreciates. During the trade, two currencies are paired together, the base currency and the counter currency. For example, EUR/USD=1.6542. The base currency is the Euro while the counter currency is the US Dollar.
During currency purchases, EUR/USD=1.6542 means that you will pay 1.6542 dollars for 1 Euro. On the other hand, when selling currencies, EUR/USD=1.6542 means that you will receive 1.6542 dollars in exchange for 1 euro. The base currency defines whether there will be purchases or sales.
A buy trade will occur when the base currency increases in value against its counterpart while a sell trade will occur when the base currency decreases in value against the other currency.
HOW TO BECOME A FOREX TRADER
Trading in foreign currencies does not require that you have a large capital outlay; the most important thing is patience and some little money. Being a very risky business, investing a lot of money may not be the most convenient thing to do. As a beginner it is advisable to invest a little money, and then as you gain experience you can pump in more money. Look for a trustworthy forex broker who has both experience and qualifications. The broker will be responsible for all your transactions, so be careful.
Next thing that you should do is to open a forex demo trading account. This account will help you to understand and learn the forex trading platform. These demo accounts function like the real accounts with market trends at that time frame, but the only difference is that trading is not done with real money. Research thoroughly about market trends in forex magazines, journals and newspapers. Seek advice from professionals and let them guide you as you begin trading.
ADVANTAGES OF FOREX TRADING
Liquidity of the FX market makes it easy to convert assets quickly into tangible cash with minimal costs incurred. This is beneficial when cash is required urgently. Another advantage of forex trading is leverage. This refers to the ability of trading with more money than what is in your account. Furthermore, transaction fees levied is very low; this ensures that profit accrued is high. Since FX market operate on a 24 hour basis you can trade at any time of day you are comfortable with.