Forex trading is one of the most profitable money-making options — a successful trader can double their investment in 6 months. However, it is also extremely risky and can ruin you financially if you don’t know what you are doing.
With this article, you will learn:
– What Forex is;
– How Forex trading works;
– How to start trading on Forex;
What is Forex?
Forex is an international Foreign Currency Exchange, where international and government banks trade currencies. It has been running since 1980, however, corporations and private traders were invited to the market only in 1996.
Forex is regulated by the rules of supply and demand — if there is a lot of a demand for a currency, its value rises, and vice versa. The Forex prices are heavily affected by the public perception of the currencies and the countries that issue them, and price changes often correlate with the mass media publications and economic reports.
However, there is a catch — the government banks that issue the currency are also on the market and they are interested in keeping its value high. So when the currency starts losing its value, a government bank will often start buying it, trying to prop it up. This increases the market volatility by an order of magnitude and provides traders with even more opportunities.
Volatility — the instability of prices on the market, characterized as rapid and noticeable changes in the value of assets. High, yet predictable volatility is preferable for trading.
How Does Forex Trading Work?
Forex trading works the same way as any other asset trading — you buy low and sell high. And as long as the price is growing, that’s easy. The downward markets, however, are much more interesting.
In order to trade on a downward trend, you need to short-sell assets. Short selling means borrowing some assets from a third party, selling them, buying them back later and returning the borrowed amount. If the price lowers between selling and buying, you will make money.
Of course, it is not that simple. If you will only rely on luck and intuition, you will most likely lose. Forex is very ruthless, especially if you are using leverage, so you need to know what you are doing. Luckily, there are great newb-friendly Forex trading strategies like Price Action trading and “Lazy River” scalping.
Leverage allows trading with larger amounts of money than your starting capital, using the resources of your Forex broker. While it increases the possible profits, the risks are also much higher. Generally, brokers offer leverage up to 1:3000.
How to Start Trading on Forex
However, finding someone willing to give that loan as an individual trader is hard. You need either an astronomical amount of money or some contacts in the industry. That’s why the majority of individual traders are using a broker who provides them with shorting capacities, leverage and cheaper access to the Forex network.
While you are searching for a broker, consider:
- Reputation. Manipulating reviews online is easy, but if your broker has a lot of negative reviews — that’s something to remember. Also, keep an eye on the way they respond to those reviews and whether or not they are solving the problems.
- Age. A lot of new broker companies are either scams or are going through growing pains. And while it may not seem fair to them, you don’t need those issues in your life. Check when your broker was registered and do not join inexperienced ones.
- Registration. The European Union and the United States have tight regulations for Forex brokers and make sure that they do not scam their traders. Other countries do not provide such warranties. So check where your broker is registered and make sure that it’s not something like St. Vincent or Madagascar. I it is, make sure that like JustForex, they have an EU license too (JustForex review).
Once you have a broker, you are set — use the manuals on their website to deposit money and download MetaTrader 4, and start trading on Forex.
Forex trading is very profitable, but difficult and involves a lot of risks. And before your turn in your first profits, you will need to study a lot. However, if you think you are up to it — Forex trading will be a great opportunity and an awesome introduction to the asset markets.