Financial security is one of the fundamental attributes of happiness, as it allows one to feel free in the ever-changing world. However, making a decent living goes beyond standard working conditions, and requires more prompt actions, like investments. One of the most accessible forms of investments is Forex trading, as you can start even when having modest financial funds, yet, decent knowledge on the matter. If you are ready to take decisive steps toward a better future, let’s clarify what you need to know about Forex Trading.
What is Forex Trading?
Forex trading, or foreign exchange currency trade, is a kind of financial investment, where the traders choose the currencies and try to predict their behavior against each other - increase or decrease in the rate. Depending on the correctness of the predictions they either earn or lose money.
The basic unit of the Forex exchange trade is a currency pair, where there are two types of currency - base and quote. The ratio of the currencies shows how much of a quote currency is needed to buy one unit of the base one. Basically, the same principle as if you were exchanging money at the exchange point when traveling. Yet this time you buy and sell currency aiming to earn money, not for the sake of exchange.
There are six main currencies that rule the global market and are traded in high volumes: USD (US Dollar), EUR (Euro), GBP (Great British Pound), JPY (Japanese Yen), and CAD (Canadian Dollar).
Currency pairs can be divided into majors, minors, and exotics.
The examples of the major pairs are GBP/USD, EUR/USD, USD/JPY, USD/CAD, and AUD/USD.
Minor pairs - EUR/GBP, GBP/CAD, CAD/JPY, AUD/CAD, CHF/JPY.
The major difference is the liquidity of the currency. Majors are more popular, and thus, more liquid. Besides, majors don’t have dramatic changes in exchange rates. Minors, on the other hand, have a lower level of liquidity, thus, the trading cost and volatility are higher.
Exotics is the combination of major currencies against ones from a developing market. Examples. USD/IDR (Indonesian Rupee), USD/HKD (Hong Kong Dollar), USD/ZAR (South African Rand), USD/THB (Thai Baht), USD/UAH (Ukrainian Hryvnia), USD/NOK (Norwegian Krone), USD/SGD (Singapore Dollar).
Those who are willing to trade the exotics need to understand that smaller markets can easily be destabilized, which causes extreme volatility.
What do you need to trade Forex?
Approaching Forex trade without proper insight into the way things work is the right way to lose the funds. Forex is a global market, therefore, the trading success will depend on the forex knowledgeability (strategies, functions, risk management) and the awareness of global events, as long as they give an impulse to numerous trends and movements within global society, which instantly influences the currency movements.
Broker and platform
The next important step is the choice of a broker and the platform.
The broker needs to adhere to the law and regulations, otherwise, your funds will not be protected enough. Check for the licenses from regulators like FCA, BaFin, MAS, ASIC, NFA, and CFTC, as their authority is accepted globally.
Brokers provide access to a platform that makes buying and selling currencies possible. There are two types of platforms - MetaTrader4 and MetaTrader5.
MetaTrader4, or mt4, is a good choice if you want to keep things simple and trade forex and CFDs (Contract for difference). MetaTrader 5, or mt5 pc , is created with a more updated programming code, which provides a better speed compared to mt4. Besides, if you are planning on trading stocks and more than one asset, then mt5 will definitely be a better choice.
After choosing a reliable broker, you need to create an account, make the first deposit, and start the trade. The starting deposit depends on the broker and may start even from $5.
However, it is highly recommended to use a demo account first, as it allows you to trade using virtual assets, with no need to use real funds.
Some brokers offer welcome bonuses, or referral bonuses, which is also a worthy option, as you have more chances to trade without spending your own money.
The Bottom Line
Forex Trade opens a whole world of financial opportunities. It is one of the best forms of financial investments nowadays, however, the initial stage of participation may seem rather daunting due to the large amount of new information and things to learn. Therefore, it is important to be patient and observant. Learn the theory, practice the strategies, be vigilant about the current events in the world, and use all your knowledge when analyzing the currency market. The result will be formed into accurate trading predictions, and thus, your profit and financial well-being.