Intro to Forex
Forex (FX), is an abbreviation of foreign exchange. Specifically, it is the method by which one currency is exchanged for another. The rate of exchange is fundamental for this type of trading. The difference between any two rates of exchange creates trading opportunities for buying or selling. One can take a position in anticipation of an increase or decrease in a rate of exchange and then exit the trade with a profit if their forecast of price movement was correct.
The international markets are among the most active global markets for trade, generating more than $1 trillion in trades per day. Trading takes place from Sunday to Friday in what is effectively a global 24-hour marketplace. The most significant markets are those in major world commerce centers such as those in the US, Switzerland, Great Britain, and throughout the Asia-Pacific region. The market acts as a catalyst to stimulate fundamental changes in economies worldwide.
Due to their 24-hour availability (5pm US Eastern Time Sunday through 5pm US Eastern Time on Friday), these particular markets offer an especially high level of flexibility, enabling traders to participate part-time or full-time as their schedules permit. Unlike other markets, those which involve foreign currency offer excellent liquidity at any time of day, a trait not seen even in most other 24-hour markets. Thus, one can trade large amounts of volume with minimal market impact. U.S. participants are permitted to leverage up to 50 times their account value on most major pairs, and minor pairs offer a 20 to 1 margin. Leverage amounts are subject to change and may not be available at all times.
Numerous factors that contribute to supply and demand can influence the volatility of a given currency. Such factors may world news and events, political actions, monetary policy, and other economic indicators, for example. One's ability to access this market via the internet makes it simple to trade currencies online from anywhere. However, it is critical that investors fully understand the nature of these markets, as well as the involved risks and procedures before initiating any trades.
Best Forex Trading
How to Start a Forex Trading Account
Forex trading can be exhilarating, but before you can delve into the exciting world of FX trading, you'll need to select a broker and make a new account. Everyone has to start somewhere, and the starting point for traders of all kinds is account creation. Here’s everything you need to know about signing up with a broker and getting started.
First, you will have to select a broker. To do this, try out various brokers’ forex demo accounts and decide which one best meets your specific needs. After choosing a broker, you’ll need to create your account, which is comparable to opening a bank account. When creating an account, you are usually required to provide the following information:
- Mailing address
- Country of citizenship
- Email address
- Phone number
- Date of birth
- Tax ID or social security number
- Type of currency used
- Employment status
- A password
In addition, you’ll likely be asked to answer several financial questions, which may include:
- Net worth
- Annual income
- Any experience with trading
- Trading objectives
There is a very simple reason why brokers need all of this personal information. They are required to comply with the law. Still considered by many to be a “new frontier” industry, regulations have been put in place in an effort to protect account owners from potential harm.
The chances of you finding a broker who will allow you to open an account without answering these questions are minimal at best. In fact, if you come across a broker who is requesting too little information, you probably want to stay away from them. If you ever have any doubt about a broker, you can learn their status through the National Futures Association.
Toward the end of the opening process, you will see a list of risk disclosures that you should read over carefully. On average, more people lose than win, especially in the beginning. Be aware that the broker is required to remind you that forex trading has the potential to be a dangerous business. After submitting your information, the broker will verify it. This may require you to send in certain documents, such as a government ID or some type of utility bill to prove your address. Don’t be surprised if it takes a day or two to go through.
After your information has been verified, you’ll be able to deposit funds into your account and start trading. The most important thing that you, as someone new to trading, should know is to never put more money into your account that you can comfortably afford to lose. Do not take any unnecessary risks. It’s best to start with a small amount of money and small trades in order to ensure your funds are protected. Once you are seeing a consistent profit, you may want to start increasing your trades.
How to Start a Forex Demo Account
Maybe you are one of the lucky ones who was born with an intuitive understanding of how trading works and how to make it work to your benefit. If your knowledge makes you infallible you should be congratulated, but if you are not comparable to Warren Buffet just yet, you may do well in testing your trading skills before taking a risk. By signing up for a free demo trading account you will be able to test your knowledge prior to placing your funds at risk.
Several brokers offer free online demo trading accounts. Vendors such as Plus500, JAFX and IG offer online demo trading accounts that, although different in look, allow you to test your business acumen. Overall, they will all request some personal information as well as the creation of password and username for you to try their product. As a user, you should never pay for a demo account. The one condition you should never compromise is the site’s ability to report information in real-time, which is essential to trading successfully.
Take your demo account seriously and make sure to familiarize yourself with its inner workings. Any training material and webinars offered by the vendor are great resources to get started. Most demo account providers will offer investment advice and tips for their users so your experience is seamless and you become a paying customer. Take full advantage and explore how the platform works until you are fully comfortable and ready to start trading in real dollars.
Even though it is a demo account, you should treat it as if you were risking real money. Utilize all research sources available online so you are not only knowledgeable on how the account works, but also the industries where you plan to invest and any outside factors that may impact your performance. It may also behoove you to open several trading demo accounts where you can model alternative trading strategy. Make sure you keep close watch over your portfolio and become comfortable with your own tolerance for risk and understanding of market fluctuations.
Once you have tried your hand for at least six months then take the plunge and open a live account. However, be mindful of the risk you are taking and do not rush into things. Slowly get used to trading in a live environment and assess the level of funding you are willing to risk at one time. Just because you were successful in the demo account does not necessarily mean you are infallible, so take your time in avoiding less than desirable consequences.