What you need to learn about Forex before you take the plunge:
Forex has been dominating headlines and currencies are swinging from lows to high and vice versa. This makes you wonder whether this is the right time to plunge into the Forex market to try your luck to make some money. It is all the more important to need to learn about Forex trading before you take the plunge.
The most important point one should realize is that Forex trading is no child’s game and has a lot of risk involved. One is therefore advised to only trade using their risk capital and not delve into their saving for the rainy day.
What is FOREX?
You must have observed that the currency keeps fluctuating on a daily basis. What you must have not realized is that Foreign exchange, abbreviated as Forex has a market where you can trade currencies and make some money. The best-known case is about George Soros who made more than a billion dollar in a single day trading in Forex. You should be cautious and know that Forex trading is not for everyone, it has a huge amount of risk and there is a possibility of you losing all your investment. Technology has been a boon for the Forex trader moreover; it has made it possible for small investors to trade. You no longer need to be money manager or get in touch with one in order to trade in the Forex market.
Forex in brief
With a daily trading volume of about $3.2 trillion, Forex market is one of the largest financial markets in the world. The NYSE cannot be compared in size with the Forex market since the trading volume is only $55 billion. The truth is that even if you put all the futures and options markets in the world together they will be diminutive in comparison to the Forex market where the volume will be no more than a quarter of the Forex market. Why size matters? Since there are so many players the transaction rates are miniscule. If you are still pondering over what differentiates the Forex and Stock market then here are a few benefits of the Forex market.
You don’t need a lot of money to get started – Easily accessible
Trading takes place 24 x 7 – You are free to decide how and when to trade.
Focus on popular currency pair where you can make money
Take advantage of leverage to magnify your gains
Pay only the bid/ask spreads – No need of any commission
How is Forex traded?
Forex trading is similar to any other trading. The only differentiator is that we only Trade in currency pairs in the Forex market where you buy one currency and sell another currency. Currencies are usually quoted in pairs such as USD/JPY, EUR/USD .Exchange rate is the difference between the quoted currencies.
For example, consider the currency pair GBP/USD. The representation indicates how much of USD one can buy with one GBP. If you feel that, the value of the British Pound will increase as compared to the US Dollar you can go ahead and purchase some British Pounds with US Dollars. On the other hand, if you realize that the exchange rates have risen then you can sell the British Pounds and make some profits. You should however keep in mind that Forex trading carries a very high amount of risk of loss.
Importance on Being Aware About Forex Trading Risks
Forex trading is not for everyone. It comes with a certain amount of risk especially for margin traders. You should realize your objective before venturing into Forex trading along with your risk appetite and level of risk. There is a high possibility of losing all your money when you venture into Forex trading. It only means that you need to invest only the amount you can risk losing. It is therefore highly recommended to seek advice from an independent financial consultant.