Forex trading advantages and things to know before starting
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Forex trading is the world’s largest financial market attended by major banks, central banks, currency speculators, multinational corporations, governments, institutions, and other financial markets. The average daily trade in the global Forex and related markets is currently over US$ 3 trillion.
Basic knowledge of the forex market
The forex (FX) market is considered the most significant market globally, with a turnover of more than 3 trillion dollars per day. The participants in this market are central and commercial banks, corporations, institutional investors, hedge funds, and private individuals like you.
What happens in the market?
It’s a place where buying or selling is done. An excellent example in the forex market is buying Euros with US dollars or selling Japanese Yen for Canadian dollars. Forex trading is the use of one currency to buy or sell another.
Of course, you don’t have to purchase or sell actual, physical currency: you trade and work with your base currency and deal with any currency pair you wish to.
“Leverage” is an advantage when trading forex.
In forex trading, the term leverage is used when an investor uses a small amount of money to open a trade with a larger amount. Using a $1,000 to buy a Forex contract with a $100,000 value is “leveraging” at a 1:100 ratio. You invest $1,000 and can lose the entire amount. But the profit earned can be more than 1000$ of initial capital many times.
How to profit from forex trading?
To be profitable, you need to take advantage of market fluctuations when trading forex. Unlike stock investing, where you need to buy stocks, forex trading doesn’t require physical currencies. You open a trade to buy or sell currency pairs in forex and look for the difference while opening and closing an order.
The forex market fluctuates regularly daily, usually around 1%. When using leverage, that rate of volatility is multiplied several times to several hundred times.
How risky is forex trading?
You cannot lose more than your initial investment (also known as your “margin”). The profit you can make is unlimited, but you can never lose more than your deposit. Therefore, you should not use more capital than you can afford to lose when trading.
How to start trading?
First, you need to open an account with a forex broker. Then fund your margin account to start trading. You can easily open an account at XM.com. XM is a reputable broker, accepting payments via most major credit cards, Neteller, Skrill, Webmoney. Once your deposit has been received, you are ready to start trading.
* See more: The complete guide XM from a to z
You can easily monitor your forex account online, anywhere, anytime. You have complete control to monitor your trade status, test scenarios, change some terms in forex trading, close trades, or withdraw profits.
Advantages of forex trading
Forex trading has some of the most significant advantages as follows:
– The forex market trades continuously for 24/days.
The forex market is open 24 hours a day (except weekends). Therefore, you can choose to trade at any time.
– The foreign exchange market is highly liquid.
Forex is a market with a trading volume of trillions of dollars per day. Therefore, this market has the fastest liquidity compared to other financial market.
– Forex is leveraged with high leverage.
Brokers usually have leverage from 50 to hundreds of times. Therefore, you can make a profit with only a tiny amount of capital when trading forex.
– Forex can use short sell orders.
Unlike stocks, which often have a long-term uptrend, you are advised only to enter buy orders. A currency pair can go up or down daily. Therefore, when trading a currency pair, you can buy or sell quickly.
– Forex is commission-free.
In the forex market, brokers only charge a spread for each trade.
– Forex brokers always provide free Demo accounts for traders.
Regardless of whether you open an account on any platform, you can easily open a virtual account for users. Virtual accounts usually provide some free capital for you to practice trading. With the use of a virtual account, you will have the opportunity to learn forex without risking your money.