Financial stability is one of the basic needs of humanity, as it provides a decent level of living; however, in the ever-changing world, it seems to be nothing but a dream. The necessity to keep up with the economic instabilities creates a demand for relevant solutions, like forex trade.
Forex trade is a global financial market that allows the participants to make a decent living while speculating on currency changes. Let’s learn how to do it.
What Is Forex Trade?
Forex is a shortened name for foreign exchange, related to the trade of currencies against each other. Forex is the most active global financial market carrying around $7 trillion worth of transactions every day. Forex participants are individuals, banks, and companies.
The Forex market is the largest financial market of all time, as it is accessible at any point in the world through the network. Forex provides its traders with flexible timing as it works around the clock five days a week, having only two days for a break.
How Does Forex Work?
Forex trading is based on buying one currency and selling the other one at the same time. While we all do such an exchange during trips to other countries and continents, forex trade supposes intentional exchange with an aim to generate profit from the exchange. Forex trade is based on speculating on the behavior of currency pairs.
The currencies have different strengths and reputations:
- The majors cover around 75% of the forex market – EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF, NSD, USD. These pairs will always include a USD.
- The minors consist of major currencies excluding USD, like EUR/GBP, GBP/GPY, AUD/CAD, etc.
- The exotics include trade with the currencies of developing countries, like USD/ZAR, USD/INR, USD/UAH etc.
There is always a price associated with each pair.
For instance, the USD/CAD pair.
- The USD is a base currency, the CAD is a quote currency.
- The pair costs 1.3815, so per 1 USD the trader pays 1.3815 CAD. If the price goes up, the USD strengthens its position, if the price goes down, the CAD is getting stronger.
By anticipating the changes in an exchange rate, the trader makes a profit or takes a loss.
How to Trade Forex?
→ 1. Learn the basics
Forex is a highly profitable and rather flexible occupation if there is a solid understanding of its functioning. The first steps in trading will seem challenging, as there are a lot of things to learn; however, practice always makes it perfect.
Apart from understanding the basic types of currencies, and their movements, it is important to learn the types of analyses (technical, fundamental, and sentiment) and build the strategy to follow.
Traders also need to consider current events and foreign affairs, as they help to see the big picture and make more precise judgments about market movements.
→ 2. Choose the broker
While building up the knowledge base, it is important to start the research of reliable brokers. There are numerous options to start with, however, you need to find the broker that meets financial responsibilities and offers a user-friendly experience.
When looking through the lists of forex brokers, it is crucial to double-check all the information about them and look for the licenses and reviews they have, to make sure they live up to their promises. It is also worth starting with the broker with welcome bonus, as it gives a chance to have a risk-free start in the trades.
→ 3. Define the limits
A welcome bonus from the broker is definitely a good chance to try your hand at trading. However, under the first successful trades, participants catch the vibe of success and forget about safe financial limits.
Before embarking on the trades, beginners should remember about 1% rule – not to trade more than 1% of the account value for a trade. Even when using all the capital, it is important to ensure that the losses will not exceed 1% in one trade.
→ 4. Open the account
After dealing with all the theories, it is time to get down to practice. The traders need to create an account on the platform they have chosen. Typically, it will request specific personal information and ID verification.
→ 5. Be vigilant
One of the biggest benefits, and simultaneously the downsides, of the Forex market is its changeability. While it is the main force of the market’s life and the profits, it is also the reason to be vigilant 24/7. Once becoming part of the forex market, it is important to track all the changes in the currencies, follow the news, analyze the political situation, and correct the trading strategy.
The Bottom Line
Currency exchange has been around for years, however, the development of a digital dimension took to a new level of development, bringing up new financial opportunities. Participation in the global forex market lets traders stabilize their financial position through the constant instabilities of our world.
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