Taking up trading can be incredibly daunting when you are starting from scratch. In order to have the best chance of success, you should learn the basics. This short article will introduce you to the basic features of forex trading, so that you can begin an informed journey. Once you have finished reading, sites such as FX-List can provide you with more information to help you choose the right broker and options for you.
What is Forex Trading?
Forex trading takes place on the foreign exchange market and is the process of trading currencies. This is essentially the process of speculating on the rise and fall of the value of one currency against another; Forex trades center on currency pairs.
For example, a trader might trade USD (US dollars) for JPY (Japanese Yen). If they make an informed trade based on sound information, they may make a profit. However, there is also the potential for loss. This is important to keep in mind, as there are risks associated with any form of trading.
How Does the Forex Market Work?
The forex market is unique when compared to other markets, because it is decentralized and is open 24 hours per day, five and a half days out of each week. There is no central marketplace; trades are made ‘over-the-counter’ (OTC) electronically.
Because of its decentralized nature, the forex market can be very active and volatile, offering the potential for large profits and rewards.
However, this is a generalization; there are actually three forex markets. The spot market is the largest and counts as the underlying asset that the other two markets, the forwards and futures markets, are based upon. These other two markets are most commonly used by businesses and financial firms, while the spot market is most popular with individual traders. As a new trader, it is here you will most likely trade.
How to Start Trading
Whichever market you want to take part in, you will need to take a few basic steps before you can begin trading. Firstly, you will need to identify a forex broker you want to work with. Companies like eToro and Oanda are popular with beginners.
Once you have identified a broker, you will need to make an account and fund it. Depending on the platform you choose, the minimum deposit may be as low as $50, but it can be higher. In order to make an account, you will need to provide some personal details, as well as a bank account payments can be made to and from.
Once you have an account with a broker, you can begin making trades. However, if you are new to the process, it can be helpful to use a demo account; many brokerages have this feature and it is highly useful. Demo accounts let you make practice trades without risking your capital.
Of course, you can also jump in and learn as you go. In this case, it is wise to start with small trades to ensure that any losses will be manageable.