Forex trading is a general acronym used to refer to investing in foreign currency. It basically refers to investing and trading in the foreign exchange market. Forex trading aims to make a profit by trading one currency for another, for example, exchanging euros for US dollars. Like any other business, forex trading does come with risks and challenges.
Forex Trading: How It Works
As already mentioned, forex trading helps an investor earn income when he trades currencies A for B. To make decisions about which currencies to invest in, traders need to observe trends to predict the existing forex prices. It will likely go down.
In the forex market, currencies are usually quoted in pairs. Pairs help show the value of one currency, say ‘A’ against ‘B’. Examples of popular pairs on the market are AUD / USD, EUR / USD, and USD / GBP.
For choosing trades, Australian traders may think that the Australian Dollar is worth; when paired against the US dollar it goes down. In such a scenario, the trader would choose to sell US dollars and buy US dollars. In case the US dollar gets more value, the trader gets more money which helps him buy more AU dollars than he originally started, which makes a profitable profit.
There are a number of forex trading platforms for investors interested in foreign exchange trading. In order for you to trade, all you have to do is register in one of the accounts, open the forex trading account of your choice, select the currency pair you want to trade and specify the amount of money you want to spend on the transaction.
How Beneficial Is Forex Trading?
Trading on the foreign exchange market has proven to be beneficial in many ways and that is one of the reasons why more and more investors in the world are choosing it as opposed to other forms of investment such as the stock market and indices. Below are the reasons why:
The forex market runs for 24 hours. During the weekdays, the forex market remains open and running for 24 hours. This not only gives traders enough time to trade, but also enough time to study trends while allowing them to access the many opportunities that may arise at any time of the day or night.
Forex trading also allows traders to trade even with a small initial capital. For you to trade, you are only required to spend a fraction of the total value of your position. This means that you have much better trading potential and a higher chance of making a good profit on a small startup. This is something that does not exist in other forms of trading.
What Is Required To Open A Forex Trading Account?
Nowadays, many forex trading dealers will allow you to open and run an online trading account. Basically, it only takes a few minutes but deals can differ with forex dealers. Once approved, the dealer will send you a link which will direct you to your account and you are ready to trade.
During registration, you will be asked to provide personal details such as your contact details, your name, date of birth, postal address and identification documents such as ID or passport. You will also be asked to state your country of residence.
After successful registration, you load your account (from your bank), and once the deposit amount reflects on your account, you are good to do business.
Are There Any Fees Involved in the Foreign Exchange Market?
Forex brokers or dealers usually charge a commission for all the trades you make. These fees are low and only a few cents per thousand dollars. However, there are some dealers who will not charge you any fees for placing the trade.
Credit and debit fees can also reflect whenever you load your forex trading account.
You will also be asked to meet something known as ‘margin’ before placing a trade. For example, to place a £ 100,000 worth of trade on an account that has a margin of 1%, you would be required to spend £ 1,000.