Forex Trading Explained
Forex trading is the buying and selling of one currency to another. Forex is short for foreign currency exchange. Trading with currencies often take place in exchanges whether online or offline.
The significance of forex in the global economy cannot be ignored. Foreign currency exchanges monitor the relative value of every currency in the world to one another. Usually, the United States dollar is use as the primary basis of the exchanges.
The foreign exchange market rate decides how much money will be spent or earned from international trades. For example, an American importer of cotton needs to buy one ton from a Chinese supplier. Since the exchange rate change over time, the American importer can buy the same amount of cotton for a lower or higher price depending on the strength of the USD.
Say that 1 USD can be exchanged for 6.34 Chinese Yuan (CNY). If one ton of cotton costs 9,510 CNY today, the importer needs to spend 1,500 USD. If the USD gets stronger tomorrow with an exchange rate of 1 USD per 7 CNY, the importer will only need to pay the exporter 1,358.47. With a small shift in exchange rate, the importer can easily save or profit 141.53 USD.
When entering the currency trading industry, you should be more aware of the things that go behind the scenes. After all, you cannot just buy low and sell high. Even if you buy low, you will not profit if you do not know that the currency will just depreciate in value in the future. Knowledge on how forex and the things that influence the movements of currency will help you avoid from such pitfall.
Do note that even if traders and brokers are the most visible entity in the foreign exchange, their activities do not affect the currency rate too much. Even if one trader or a group of traders purchase currencies in millions, he or his group’s effect on the currency or country that owns it will not be affected. If it does affect, it will be too insignificant to ruin or budge an economy.
Anyway, what you or your broker does do not concern the global market. This means that you have no restrictions and limitations on how you can trade on the market. Basically, your goal as a currency trader is to earn money.
When it comes to the factors that affect the movement of currencies, there are a lot. First of all, currency rates are primarily affected by macroeconomics. The state of economy of a country mostly dictates the value of its own currency. Capital markets, international trades, political conditions, and economic releases are just a few of the other things that affect currency rates and a country’s economy.
Best Brokers for Currency / Forex Trading
Your broker or brokers are part of your success in trading. And it is crucial that you find the best one for you as early as possible. After all, they will be the one that will provide you with the platform and give you access in the marketplace.
When choosing the best broker, always remind yourself that there is no such thing as the best broker in the world that will be able to satisfy all the needs of all the traders in the world. Choosing the best broker is a subjective journey.
Also, do note that you do not need to be stuck with one broker only. You can always opt to sign up with multiple brokers. If you can’t find the sole best broker for you, you can work with multiple ones, which when you combine all their traits and features, will result into the best trading experience for you.
For example, you might be a person who wants to enter into different options like stock market, CFD, and cryptocurrency trading. Some brokers only specialize in forex trading while some allow their traders to play with multiple options.
On the other hand, you might be a trader that has a limited budget. Some brokers accept a minimum deposit of $100 while other brokers have minimum deposits of $10,000 up to $25,000. At this point, you already got the point or idea.
Thankfully, this site will make finding the right broker for you become easy. After all, the mission of this website is to present, inspect, and review online brokers that are reputable and trustworthy. You will find here an intensive list of online brokers that are on the top.
Each entry in the list are reviewed and inspected meticulously by the site’s editors and staff. You will find all the crucial information you need about the broker neatly listed for you to immediately shortlist the ones that you would want to work with.
On the other hand, do note that most of the brokers here are mostly operating in the European Union. They are licensed and regulated by EU financial authorities. The biggest advantage of having EU brokers is that they have greater access to all markets and the financial authorities that regulate them prioritize safety and stability of operations. If you are planning to work on other trading options, EU brokers will benefit you a lot.
Advantages of Forex Trading
Forex trading is an excellent source of income. However, it does not mean that you should devoid yourself of fun. Most casual traders usually treat forex as a hobby. They have fun by just finding out that their analysis and prediction of the currency trend is correct.
Of course, taking trading with currencies seriously is better. Investing time and money in this trading option is often rewarded. In addition, it can be a stable income source if you get the hang of managing risks and choosing the right calls.
Another advantage often looked over by people is the “easiness” of learning how to trade. Forex trading is not rocket science. It is not supposed to be difficult. If you think about it, currency trading always boils down to two decisions and questions: is the value of the currency low enough to buy and is the value of the currency high enough to sell?
If you still believe that it is difficult to get into trading foreign currencies, do not fret. New traders are fortunate enough to be on a time when it is easy to consult an expert and find answers in an instant. Many communities that revolve around foreign currency exchange exist on the web. Also, compared to before, you do not need to pay a broker to give you insights about the possible deals you need to make.
With trading platforms created and offered by brokers nowadays, you can easily get the information that you want. They will be mostly available on the platform that you are going to use.
Another thing that makes trading with currencies attractive to new investors and traders is that it is easy to trade straight away. Within a few minutes, you can instantly sign up to an online broker. If you do not know the broker you would want to work with, you can just browse this website for one. And it will not take you 10 to 15 minutes to find what you are looking for.
Then, if you have the minimum deposit required by the broker that you have chosen, you can start straight away. Nowadays, minimum required deposits of online brokers are too low. You can easily find one that will only require a small amount of $100.
In case you are unsure yet, then you do not need to worry. Aside from allowing you to trade straight away, some brokers offer demo accounts. Demo accounts are virtual portfolios with virtual credits that you can use to “play” with a demo or test platform.
In a test or demo platform, you can trade freely as much as you want. Do note that most demo accounts will display information that is truly based on real time data from markets and exchanges. The only difference between a standard active account and demo account is that, with a demo account, you will not need to deposit real money and you will not be spending or earning any real money.
How to Start Trading Currencies
Forex trading is as simple as buying and selling currencies. To earn, just buy currencies low and sell currencies high. You can keep the currencies you bought and sell it when the value appreciates after a day, which is referred to as short term trading. Short term trading ensures fast but small profit since the changes in the value of the currency can be small.
On the other hand, you can keep the currencies, wait for a long time, and sell it to make sure that when you sell it, the appreciation of the amount will be higher. That is called long term trading. However, it can also be risky, especially if your prediction that the currency will appreciate is wrong.
Trading foreign currencies will be here to stay for quite a long time. And that means that it will be a viable means of income. For aspiring long term traders, it is best that you start now to maximize your profit. For aspiring short term traders, it will be best that you invest on learning how to trade forex more to ensure that you are well armed in the fast changing pips when trading.
The first step for you to get started trading is find the reputable and best broker for you. You can use this website to find that broker. The site assures you that all the brokers listed here are reviewed and inspected. They are also the cream of the crop.
Signing up with a broker will only take you a couple of minutes. Usually, they only require a Facebook, Google+, or an email account. To get started with trading on a broker’s platform, you usually need to provide a minimum deposit.
If you are not ready to deal with real trading with currencies yet, you can opt for using a demo account. Do note that not all brokers provide this type of account. You can find online brokers that give out demo account here in the site’s list.
Aside from getting an account with a broker, you will need to meet a few more requirements. First, you must know how to read those trading charts. There are three common charts used in trading. They are bar, line, and candle charts.
Next, aside from the minimum deposit, it is advisable to have a separate amount of money that you can use as an investment capital. Be sure that the money is completely independent from your living expenses.
Then, you should at least know and understand one or two currency pairs that you want to trade in. It is common that people opt for trading currency pairs that involve the United States Dollar. Then, be sure to follow the countries that own the currencies you chose. Watch the news, be aware of their political events, and always be ready for any sudden impactful events that can turn an economy of those countries upside down.
After that, make sure to assess yourself. Know your tolerance when it comes to risk. Are you a risk taker? Or do you always play safe? Can you manage your risks well? Are you a person who craves for instant gratification? Do you always make decisions on impulse?
Ask those questions to yourself. Know that the biggest risk in any trading is the trader himself. The more you succumb to unsound decisions, the more likely that you are going to fail.
Also, rely more on yourself than automated features. Some platforms and brokers offer automated features that can help make a trade for you. It sounds convenient, but it can be shady and impractical. What if the feature is rigged to set you lose?
On the other hand, if the feature and broker are honest, the other problem with automation is that you might not learn anything. Also, the enjoyment of having the full control of your movements and risks will disappear once you rely on a computer to do your own trades.
Once you have done and secured the previous things, you can now start trading. And if you master foreign exchange, then feel free to explore other trading options and industries.