Everything you need to know about Forex trading
Forex trading is one of those things that many have heard of, but only a few really understand. There is also a lot of controversy around forex trading. This type of trading is often described as a get-rich-quick topic by those who want to discredit it.
Of course, that couldn’t be further from the truth. The purpose of this guide is to dispel these misconceptions and introduce you to one of the most challenging and rewarding forms of trading. Let’s get started.
What exactly is Forex trading?
Foreign exchange markets are similar to stock markets or commodities markets in that you can trade through a broker. However, most of the similarities end there. Unlike stocks or commodities, when you engage in currency trading you are trading currencies, hence the name exchange.
In other words, you buy or sell national currencies from all over the world. Because there is no centralized exchange, the markets are open at all times except weekends.
How is profit made in Forex?
Okay, so you buy and sell money – how exactly is that earning you money? There are two ways to make money in forex. One is to take advantage of the change in exchange rates between two different currencies. The other is to earn money by taking advantage of an interest rate differential between two currencies.
Make money from the difference in exchange rates
Almost all the money in the world constantly fluctuates in terms of value. The rate of inflation, the financial policy of the donor country, the state of the economy and many other factors all affect the current value of a currency.
The idea is to find a strong pair where one currency is relatively stable and the other shows some potential for oscillation. Then you buy low and sell high. It sounds simple, but it definitely isn’t. With so many factors involved in forex trading, knowing when a currency will go down, why, and for how long can be difficult even for experienced traders.
Who can trade in the Forex markets?
The answer is anyone, as long as you have access to a broker. Brokers are there to give you access to global markets, while providing you with the software, graphics tools and other services you need. Of course, this all pays off, which is often manageable. As long as you can register with a broker, you could be forex trading in Nigeria for example or any other place in the world where forex trading is legal. You should always check the laws and regulations regarding any type of trade in your country. This way you will always be in full compliance with the law.
How to find a Forex broker?
Forex brokers are plentiful, but finding one is not as easy as selecting the first broker that appears in Google. There are certain qualities that define a good broker. Most importantly, you’ll need someone with a proven track record – a familiar name with a proven track record. New brokers without a reputation are a risk.
While the security of your account is important, brokers are also defined by their ability to provide transparent trading. In other words, a broker that offers lagging software, incorrect information on currency pairs, and generally lacks real-time information is a broker that you should not use. Sometimes Forex trading requires you to place quick buy or sell orders based on volatile trading information. If you cannot execute these orders momentarily, you need to find a new broker. It’s that simple.
Can you predict the prices of currency pairs?
The answer is a strong “it depends”. Forex, like stock trading, is subject to technical analysis. This term represents a group of proven, empirical methods and techniques that you can use to extrapolate the potential future behavior of a currency pair, stock, or commodity. The methods mentioned here include the analysis of past price trends, historical patterns, etc.
For example, if a certain currency shows a constant trend of opening low every 3 weeks of the month, you can base your actions on that information. Does that mean it will open low every time the 3rd Monday of the month passes? It’s hard to say, but the odds are in your favor here.
What is a trading strategy?
Each trader approaches the forex markets in a slightly different way. Everyone has their own idea of how they can make money in the forex markets. A trading strategy is nothing more than your own way of making a profit with your portfolio. In most cases, each strategy has defined elements.
You will need to select the market in which you are most comfortable operating, manage your exposure by limiting the percentage of your portfolio that is invested in each position, determine entry and exit points, and then develop your own. trading tactics.
The problem with trading strategies is that they change all the time, especially if you are just starting out. There is a steep learning curve for forex trading, and it involves a lot of trial and error. As you progress you will learn what works for you and what doesn’t. It may take some time to establish a trading strategy that has a success rate of over 60%.
What are the risks involved?
The truth about forex is that the risks involved are what you allow them to be. In other words, you can only lose money that you are willing to risk. Most tragic forex stories revolve around people who took too much risk with their entire portfolio, or who used large amounts of leverage in their trades.
It is not a currency problem, it is a trader’s problem. If you limit your exposure, tie only 30% of your wallet and play smart, you can significantly reduce the risk of losing money. Even so, only trade with money you can lose and don’t worry about it. In other words, don’t take your monthly food budget and deposit it into your forex account.
The best thing you can do is accept that all the money you put in your forex account is already lost, much like what you would with gambling. Treat it like it is, and at least you will. make sure you don’t end up in a bad patch if things go wrong.