Discover the fundamentals of foreign currency exchange. Forex is a viable earning instrument popular across the world. Here is how such trading works.
Forex Currency Trading Guide
The sheer volume of currencies bought and sold globally is colossal. Roughly $6 trillion circulates on the international currency exchange daily. According to recent estimates, over 15 million individuals connect to the marketplace online. These retail traders open positions alongside institutional players, such as hedge funds or major banks.
A few decades ago, the currency exchange welcomed only large-scale participants. Today, anyone can test their finance foresight and open an account. From Europe to Thailand, local brokers open access to the vast market, providing necessary tools for traders. Digital platforms allow us to buy and sell currencies and stocks from the comfort of our homes.
Where to Begin
If you are thinking of joining the Forex trading community, start with the basics of exchange. This includes the pairs, the rates, and the costs. All currencies accepted by the marketplace are bought and sold in pairs.
Each combination falls into one of the three categories:
Their distinctions are based on the number of factors, including liquidity. Each pair includes a “base” currency and a “quote” (also “counter”) currency. The two are separated with a slash sign. For instance, the price for the popular EUR/USD pair shows how many US dollars one Euro is worth.
Exotics are traded the most thinly. They include the Iraqi dinar, the Uruguay peso, and other currencies with poor liquidity. Majors, on the other hand, are the most common and popular. These are combinations with the US dollar, for example, the above-mentioned EUR/USD. Minors include highly liquid currencies like EUR, GBP, and Yen, but no USD.
Rates and Positions
To buy or sell a currency, you need to open a position. Traders make a profit (or a loss) depending on exchange rate dynamics. The goal is to benefit from changes in values. For instance, you may buy US dollars and sell them back after the value spikes. This is a profitable position.
All rates are in permanent flux, as they are affected by a multitude of factors. From geopolitics to domestic policies, the list of causes is lengthy. For example, money systems of oil-exporting nations (such as Russia or Venezuela) are largely dependent on oil prices. Once oil loses value, so do their currencies.
What Are the Costs?
Any currency combo has two prices displayed at the same time. One of these works for the seller (Bid) and the other one for the buyer (Ask). In line with the general logic of any sales, the asset is always slightly more expensive for its buyer than for its seller. The difference between the values constitutes a “spread’, which determines the benefit for your intermediary – broker.
In Thailand, Forex trading is easily accessible through the FXTM platform. Generally, brokers profit from spreads and commissions or both. Market maker companies set their own ask and bid values. Their ECN (electronic communication network) rivals charge commission on each trade. The second model is viewed as most transparent, although some companies use hybrid models.
Here is what your Ask and Bid may look like. In the EUR/USD combination, the price for the buyer can be 1.2868, and the price for the seller – 1.2800. This means you would spend just under 1 US dollar 29 cents to purchase one Euro. Meanwhile, the seller gets 1 US dollar 28 cents for the trade. Each 0.0001 is known as “pip”.
Types of Accounts
Training is the initial stage for any Forex rookie. Fill out a simple form on your broker’s website, and login details will land in your inbox immediately. These are used to unlock the platform. The most popular software choices are MetaTrader 4 and MetaTrader 5.
The demo mode is perfectly safe, as no real deposit is used. Newbies have complete freedom to explore the functions of the digital environment. Practice opening and closing positions, setting “Stop Loss” and “Take Profit” limits, and analyzing visuals. Top platforms are packed with graphic aids that facilitate forecasting. Naturally, there is a learning curve, and training is essential.
The next stage is live trading, which requires a switch to the second account type. This time, the broker will require copies of documents to verify your identity. Now, you may enter the real marketplace with trillion-dollar volumes.
Reasonable Approach to Trading
It is vital to understand the risks of live trading. Do not rush into the activity headlong. Consistent success requires thoughtful preparation. Take advantage of tutorials, articles and other helpful content. Some of it should also be provided by the broker.
Traders who lack time or experience may use the copy trading strategy. In essence, decision-making is delegated to professionals. Your strategy manager invests your funds and gets a fee if profit is made. However, despite the existence of tools and strategies limiting risk, it cannot be eliminated completely.