Forex trade is a well-known type of financial investment, as it helps traders stay on top of economic volatility and multiply their savings. Forex requires sharp and analytical thinking, a deep understanding of world affairs and their influence on the financial market, and a Forex broker, who will provide the tools to trade with.
Want to Trade Forex: Follow Our Guide
Let’s explore the essentials you need to know to trade on Forex, and what are the steps to perform to become a trader.
What Is Forex?
Forex is a currency trade market, where certain currencies are bought or sold at an established exchange rate. While we all perform this activity for traveling or commercial reasons, with Forex, the exchange is done on purpose, aiming to make a profit.
Forex has no central regulatory office, as it is a decentralized global market, which works round-the-clock five days a week, and closes down for a weekend.
Key characteristics:
- Forex world is based on currencies’ behaviors against each other. Any kind of fluctuation (upward or downward) can bring profit when anticipated correctly.
- Forex often functions on extremes. While being extremely profitable, it is important to be ready for potential losses, as political and economic aspects influence the volatility.
- Forex is based on currency pairs, which consist of base and quote currencies, like EUR/USD. One unit of base currency (EUR) costs the amount of the quote currency (USD).
- Forex trade is typically performed through a broker, who facilitates the trade.
Forex Currencies
Forex currencies are a fundamental part of the trade and are always shown in pairs. The pairs are divided into three main types considering the strength of the country’s economy: majors, minors, and exotics:
- Major pairs will always include a USD and currencies of the strongest economics;
- Minors include strong currencies against each other excluding USD:
- Exotics deal with less liquid currencies of the countries that have a developing economy.
Let’s look at an example:
USD/MYR – 4.68
USD is a base currency, you buy it; 1 USD is worth 4.68 of quote currency MYR.
The point is to anticipate the movement of the currencies against each other and sell or buy currency accordingly.
How to Start Forex Trading
1. Learn the basics
If you are willing to target a long-term existence in the Forex world, you have to learn its structure – types of markets, terminology, strategies, analytic charts, etc. Fortunately, in the era of the Internet there is no lack of educational content, hence, take your time and learn as much as possible about the way things are organized in Forex.
2. Choose a broker
A broker is like a middleman who is responsible for managing your acc cent Forex account and executing your trades. Their performance should comply with the policies of The Financial Conduct Authority (FCA), The Prudential Regulation Authority (PRA), Financial Services Compensation Fund (FSCS), which are the main regulatory bodies of Forex trade.
Apart from regulations, it is worth checking the trading conditions, fees, size of leverage, etc. As a rule, brokers offer a platform mt4 for windows for trading, as it offers a user-friendly interface, and an extensive choice of trade assets – currencies, stocks, indices, and commodities.
3. Open an account
A trading account is created once you have found the right broker. As a rule, you need to provide personal and financial information and submit specific documents to verify all the data.
After creating the profile, you need to deposit funds through the most suitable payment method (e-wallets, credit cards, bank transfers).
The initial funding starts with at least 100 of your selected base currency. If there is a need for more money, yet there is nothing available at the moment, you can use the leverage option.
4. Practice with demo accounts
The majority of brokers offer a demo account or a trial usage for the first few days, to let the traders get adjusted to the system and see how things work in practice. The demo version is like a dress rehearsal, as you can apply your knowledge, and gain real skills, yet, you will not risk your funds.
5. Start trading
Once you are introduced to the world of trade, you can start following a steep yet rewarding learning curve. It is not recommended to trade big amounts of money, even when being sure of the positive outcome. It is better to take things slow and increase the volumes step-by-step, learning all the ins and outs of the trade.
When you get used to the trades, you can try various strategies and follow different types of trade, as you will have a better understanding of the whole process.
The Bottom Line
Forex trade is one of the best forms of financial investment, as it allows you to make money using your available funds. The main point of Forex is buying and selling the currencies depending on their fluctuations on the market, thus, earning money on the constant market instabilitites.
Forex trade will definitely seem difficult at the beginning, as there are a lot of things to learn and understand; however, it’s one of the best forms of financial and intelligence investments when considering the long-term effect – the more knowledgeable and skillful you become, the more precise your predictions are, and thus, bigger volumes of money earned.
Images credit: Shutterstock