How to Trade Forex – Learn the basics
- How to Trade Forex
Trading foreign currencies in the currency exchange market is an interesting option to generate passive income. Forex traders can make as much money as they want by spending a few hours online every day. The forex market handles $5 trillion worth of transactions every day and it is much larger than the stock market. The rise and fall in the stock market are highly unpredictable, but there is always an opportunity to gain with the forex market. However, there is also a considerable amount of risk in trading currencies. You can’t become a forex trader without learning the important details of forex trading.
- Understanding currency trading
The currency values fluctuate throughout the day. The movement of currencies is exploited by the traders to make a profit. There are numerous success stories about traders who made billions trading currencies in a day. If you don’t understand the market, you will, however, lose your investment. With some knowledge about currency exchange rates, anyone can become a trader and there is no need to invest a lot of money in the beginning. When you start making profitable trades, you can spend more money and earn more.
In the forex market, currencies are always traded in pairs. The difference in the exchange rate results in profit or loss for the trader. As a trader, you have to buy and sell currencies to make a profit. The currency pair is represented as EUR/USD, for example. It represents the number of USD you can buy with EUR. You have to buy a currency that you predict to increase in value in the near future. In the example, if you think that EUR will rise in value, you have to buy EUR with USD. When the exchange rate increases, you can sell the EUR. The difference in the buying and selling price is your profit. In the forex trading, the purchase price between the two currencies in the currency pair is the exchange rate.
- Popularity of forex
In recent times, the stock market is facing huge ups and downs. This has made the traders highly uncomfortable because, sometimes, the loss is the only option for most of the traders when the market is open for a short duration. The forex market is available 24 hours a day, allowing a trader to trade currencies at his own convenient times. You can enter and exit the market at your own will as the exchange rates change continuously every second. The stock market can result in confusion as there are tens of thousands of different stocks. In the forex market, you can only trade eight major currencies, narrowing down your choice. The forex market has the largest liquidity, allowing you to trade currencies in any way you want.
One of the biggest reasons for the popularity of the forex market is that it never crashes like the stock market. No person or country or institution can control or corner the market. Even the biggest banks in the world cannot exhibit control over the market. This provides an opportunity for small traders to make a profit at all times. When one currency loses its value, another one gains significance and this makes it possible to profit with every trade.
- Entering the forex market
In order to trade forex currencies, you have to create an account with the forex broker. You cannot trade currencies on your own and you always have to associate with a broker. The online brokerage companies allow you to create free accounts and you can start trading with real money once you deposit some cash in your account. Even though you have to trade forex through the brokerage companies, these firms don’t charge commissions. You don’t have to pay anything more than the bid and ask spreads. You can trade currencies at any time you want without any limitation on the availability of the market.
The brokerage firms provide huge leverage so that you can trade more with a smaller deposit. The massive leverage implies that your profits and losses are magnified every time. You can either stick to a couple of currency pairs or trade any currency pair of your choice. Forex trading is feasible and affordable for small traders because you can start with as low as $100.
- Trade currencies successfully
The forex brokerage firms provide you with a forex trading software that can be downloaded to your computer. Some firms provide online trading software which requires no download. You should first trade currencies for free using a demo account without investing your money. This will help you to understand the different features of the software. If you don’t like a brokerage, you can always try another as there are hundreds of different forex brokers. Once you gain confidence in your forex trading skills, you can invest your money.
Before trading, you have to spend a lot of time on market analysis. Forex market is highly volatile with a huge liquidity. Forex brokers usually provide you with charts and historical data that can be used to predict the movement of currencies. You can also find software tools that automate this process and provide you with details that are easy to comprehend. You should also understand the fundamentals of currencies to make your trading decisions. With some practice, you can predict whether the market is bullish or bearish. It is impossible to make accurate predictions, but if you are close enough to the market trend, you can easily make a profit.
Forex trading is simpler compared to stock trading, but there is always a high level of risk. You should invest more time in understanding the forex market before trading with real cash. You should never invest money that you can’t afford to lose because a win is not always guaranteed.