Forex trading has gained more and more popularity over the past few years as it becomes more accessible for people to begin their forex journey. However, while people are keen to start, they may not fully understand forex and forex trading.
Oanda.com tries to make it as easy as possible for people to begin trading, but you may still have a few questions. Here is everything you need to know about forex and how to start trading it today.
What is Forex?
Forex, or foreign exchange, is the buying and selling of currency. In simple terms, you are able to buy a foreign currency in Dollars, for example, wait for that foreign currency to strengthen against the Dollar, and then sell that new currency.
You profit from the exchange rate changing, such as $5 being able to buy you £4. If the Pound then strengthens, you can sell your Pounds back for Dollars and get back $6, let’s say. You make a $1 profit due to the currency you bought strengthening against the currency you used.
What Can Be Traded?
Forex isn’t like stocks where you can buy one stock from one company, and the value is determined by the value of the company or business. On the other hand, forex has a currency pairing system.
All the currencies you can trade are paired up, such as Pounds/Dollars, Dollars/Euro, Euro/Yen. The first currency is the one you are using to buy, and the second currency is the one you are buying.
Most forex platforms have up to 50 or 60 different currency pairs, covering almost every major currency in the world. While some platforms will carry a few “niche” currencies, most traders don’t look this far.
Markets
Forex markets and offices are located around the world, with all of them offering the major currency pairs and the niche currency pairs dependent on the office’s location. Trading times will be discussed next but what is important to know is that forex markets are far more accessible than stock markets.
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When to Trade
With markets located globally, you are able to trade forex 24-hours a day. There is no need to wait for the markets to open if you are looking to make a quick trade or withdraw your money whenever you want.
This is something that people prefer over the stock market. Consider the stock market closes, something significant happens overnight, and you aren’t able to do anything about it; you don’t have the same problem with forex.
Leverage
Leverage is a significant aspect of forex trading, but it is a concept that beginner traders may not fully understand or know how to utilise. In simple terms, leverage is additional trading funds provided by the broker you use.
For example, if you deposit $100, but your broker offers levels of 5:1, you essentially have $500 to trade with. Considering the amount of currency traded every day is in the millions, sometimes billions, leverage is used to maximise profits.
While leverage should be used with caution, it can be a helpful tool in making a profit while trading forex. This is especially true when making one cent profit on $50 isn’t a lot, but scaled to be a profit on $5000 is a lot more.
When Not to Trade
Much like any other trading investment, it is also essential to know when not to trade. Currencies fluctuate far more than stocks, and it can sometimes look scary if there is an unexpected dip.
When you are beginning, it is vital to develop the skill of letting the market do its thing and not putting too much stock into slight changes.
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Research
Finally, if you have any other questions or a part of forex you are still unsure of, the best strategy is to research as much as possible. There are countless resources, forex courses, videos and books written about trading forex.
While there is no definitive “best” way to trade, there are steps you can take and strategies to use to give yourself the best possible chance at success. Forex trading can be as straightforward or as complicated as you want it to be; you just have to explore what suits you best.
