The foreign exchange market – most often called the Forex Market, or simply the FX market – is the largest and most liquid of all international financial markets. The forex market is the ultimate trader’s market where money can be made in a matter of seconds or minutes.
The average daily currency trading volumes exceed $5 trillion per day. To give you some perspective on the size of the market, it’s about 10 to 15 times the size of daily trading volume on all the world’s stock markets combined.
Thousands of people, all over the world, are trading Forex and making tons of money. So, why not you?
All you need to start trading Forex is a computer and an internet connection. You can do it from the comfort of your home, in your spare time without leaving your day job. And you don’t need a large sum of money to start, you can trade initially with a minimal sum, or you can start practicing with a demo account for free without the need to deposit any amount.
In This Article
Understanding Forex Market
You might be wondering on how to make money trading currency. As a currency trader, you need to get the idea that each currency trade consists of a simultaneous purchase and sale. In the stock market, for instance, if you buy 100 shares of Microsoft, you will own 100 shares and hope to see the price go up. When you want to exit that position, you simply have to sell what you bought earlier. That’s it, right?
But in currencies, the purchase of one currency involves the simultaneous sale of another currency. If you’re looking for the dollar to go higher, the question is “higher against what?”. The answer has to be another currency. In relative terms, if the dollar goes up against another currency, it means that the other currency has gone down against the dollar.
Forex markets refer to trading currencies by pairs, with names that combine the two different currencies being traded against each other or exchanged for one another.
Major Currency Pairs
The major currency pairs all involve the U.S. dollar on one side of the deal. The designations of the major currencies are expressed using International Standard Organization (ISO) codes for each currency. Currencies are designated by three letter symbols. The standard symbols for some of the most commonly traded symbols are:
EUR – Euro
USD – United States Dollar
CAD – Canadian Dollar
GBP – British Pound
JPY – Japanese Yen
AUD – Australian Dollar
CHF – Swiss Franc
The U.S dollar is the central currency against which other currencies are traded.
Forex transactions are quoted in pairs because you are buying one currency while selling another.The first currency is the base currency and the second currency is the quote currency.The price or rate that is quoted is the amount of the second currency required to purchase one unit of the first currency.
For example, if EUR/USD has an ask price of 1.2324, you can buy 1 Euro for 1.2324 USD.
How to Profit in Forex Market?
Once you consider starting trading Forex, one of the first things you need to do is choose a broker, choosing a reliable broker is the single most critical factor to Forex success.
We can find hundreds of brokers, all offering a very popular platform known as MT4 (MetaTrader4) which is free, who will open an account for you and start trading in minutes.
I myself started of Metatrader4 and planning to move on to live to trade. This course has given me all of the knowledge to make money, you can also take trade forex profitably and safely at low cost if interested with the aid of this course. All you have to do is follow the advice mentioned here and do your research. Next thing you know, you will be earning a steady income from the forex trading market in no time at all!
Obviously, buy low and sell high! The profit potential comes from the fluctuations in the currency exchange market. Profit and loss calculations are pretty straightforward- it’s based on position size and the number of pips you make or lose. A pip is the smallest increment of price fluctuation in currency pairs. Pips can also be referred to as points.
Is Forex trading Risky?
You cannot lose more than your initial investment (also called “margin”). The profit you may make is unlimited, but you can never lose more than the margin.
If you wish to trade using a trading platform or any other platform, you must first register and then deposit the amount you wish to have in your margin account to invest.The good thing is you can monitor your account online from anywhere and anytime. You have full control to monitor your trading status, check scenarios, close deals and withdraw profits.
Advantages to Trading Forex
There are many different advantages to trading forex instead of futures or stocks, such as:
1. Lower Margin
Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%.
For example, margin required to trade foreign exchange is $1000 for every $100,000.
What this means is that trading forex, a currency trader’s money can play with 5-times as much value of the product as a futures trader’s, or 50 times more than a stock trader’s.When you are trading on margin, this can be a very profitable way to create an investment strategy, but it’s important that you take the time to understand the risks that are involved as well.
2. No Commission and No Exchange Fees
When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant. Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures.
For example, if you are trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker’s commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is, however all inclusive pricing though.
You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.
3. Limited Risk and Guaranteed Stops
When you are trading futures, your risk can be unlimited, while with forex the risk is limited as it has a stop loss set before.
4. Rollover of Positions
When futures contracts expire, you have to plan ahead if you are going to roll over your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.
5. 24-Hour Marketplace
With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away.
Forex, on the other hand, is a 24/5 market. The day begins in NewYork, and follows the globe through Europe, Asia, Australia and back to the US again. You can trade anytime you like Monday-Friday.
6. Free market place
Foreign exchange is perhaps the largest market in the world. With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.
Forex trading is simply a great alternative to futures and commodities trading. Unless you are a broker, you will likely want to get some help in forex trading to help ensure that your venture is successful.
How to choose the right broker to help you in making your trades
When it comes to getting started in forex trading, there are quite a few things that you have to consider first. The first thing that you need to do is to find and choose the right broker to help you in making your trades. When you are choosing a Broker you need to know that there are many FOREX brokers to choose from, just as in any other market.
Here are some things that you need to look for in making your choice:
1. Low Spreads
The spread, which is calculated in pips, is the difference between the price at which a currency can be bought and the price at which it can be sold at any specific point in time. FOREX brokers don’t charge a commission, so this difference is how they are going to make money.
When you are comparing brokers, you will find that the difference in spreads in FOREX is as large as the difference in commissions in the stock arena. What this means is that lower spreads will save you money and therefore, look for a broker that offers low spreads.
2. Quality of the Institution
Unlike equity brokers, FOREX brokers are usually attached to large banks or lending institutions because of the large amounts of capital that are required.
Also, FOREX brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).
You can find this and other financial information and statistics about a FOREX brokerage on the company’s website or the website of its parent company. You will want to make sure that your broker is backed by a reliable institution.
3. Extensive Tools and Research
FOREX brokers offer many different trading platforms for their clients just like brokers in other markets do. These different trading platforms often show real-time charts, technical analysis tools, real-time news and data, and even support for the various trading systems.
Before you commit to any one broker in specific, you will need to be sure to request free trials so that you can test their different trading platforms.
Brokers usually provide technical as well as fundamental commentaries, economic calendars, and other research as a means of assisting you. Basically, you will want to find a broker who will give you everything that you need to succeed.
4. A Variety of Leverage Options
Leverage is a key necessity in FOREX trading because the price deviations (the sources of profit) are just set at mere fractions of a cent.
Leverage, which is expressed as a ratio between total capitals that is available to actual capital, which is the amount of money a broker will lend you for trading.For example, when you have a ratio of 100:1, this means that your broker would lend you $100 for every $1 of actual capital. Many brokerage firms will offer you as much as 250:1.
Of course, you need to remember that lower leverage also means lower risk of a margin call, but it also means that you will get a lower bang for your buck (and vice-versa). Basically, if you have limited capital, you need to make sure that your broker offers high leverage.
If capital is not a problem, you can rest assured that any broker that has a wide variety of leverage options should suffice. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable if you are dealing with highly volatile (exotic) currency pairs.
5. Account Types
Many brokers will offer you two or more types of accounts. The smallest account is known as a mini account and it requires you to trade with a minimum of may start anywhere from $50-$300 depending on the broker you choose.
This offers you a high amount of leverage (which you need in order to make money with so little initial capital). The standard account allows you to trade at a variety of different leverages, but it also requires a minimum initial capital of $2,000 to get you started.
Lastly, there are premium accounts, which often require significant amounts of capital to get you started. It also lets you use different amounts of leverage and often offer additional tools and services. You will need to make sure that the broker you choose has the right leverage, tools, and services that are relevant to the amount of capital that you are able to work with.
FOREX trading is a technical market and you should not try it unless you are absolutely ready to take the time to learn the basic principles that make up this currency market and become competent in the use of some of the tools at your disposal.
It is not necessary to become an expert in these markets to profit from them. With a little time and effort you can quite easily gain enough of an understanding of the currency markets to start making money online and off and, eventually, you will be surprised at just how quickly you can become quite an expert.
To trade forex, you need to open a trading account and use a platform that’s easy to use, easy to trade, totally secure and preferably web-based.
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