What Is Forex Trading And Why Should You Trade It?
Forex trading is not really that difficult to understand, but with so many tutorials and a lot of talk going around, many have a clear misunderstanding of what it is exactly. The daily transactions of the forex currency exchange stand at a massive $5.1 trillion dollars. This market has a trading value of more than the stock and debt market put together.
Do you struggle to understand what the forex market is? In this article we endeavour to strengthen your knowledge on the basics of forex trading in order for you to start dabbling in this lucrative money-making industry. According to business24-7 forex trading beginners are starting to trade with too less knowledge and experience and are loosing money in almost 88% of the time.
Forex trading is a lucrative industry for both entrepreneurs and diligent individuals. As said before, a whopping $5.1 trillion dollars is transacted on the forex market every day. There is no need for a formal education, employment interview or a fancy suit to be a forex trader. The topmost traders aren’t necessarily those that come from the foremost privileged families or backgrounds, in fact forex trading’s success lies in working hard and smart.
Forex trading is not a get rich quick scheme as so many are trying to portray it as. It truly does have a world of potential if played smart. You need to have the capability of finding out new ideas quickly. You also need to have a firm grasp on your emotions, something which is lacking within most individuals.
Before diving into it, let’s check out the most significant question about forex trading.
What is Forex Trading?
Forex trading is the world’s largest financial market. It trades currencies in the foreign exchange market and serves as a platform to buy and sell currencies, which includes converting one currency to another depending on the performance of the currency in a said period of time.
These currency conversions are expressed as a magnitude relation of 2 currency codes. For instance, if the GBP/USD is at 1.29, then purchasing the British pound – i.e. 1GBP – would be around 1.29 USD. It might be a bit confusing for beginners to know terminologies like FX and be able to properly track your bets, but with practice all confusion will clear.
When you purchase a currency pair, like the JPY/USD, you are betting that the JPY is going to increase in comparison to the USD. To predict these changes requires an analysis of news and events, called fundamental analysis, or on analysis of chart patterns, called technical analysis.
So, in the example above, if the analysis indicates that there is a rise in value of the Japanese Yen (JPY) in relation to the USD, then it would make sense to buy this currency pair while the price is still low and then make a profit selling it when the price rises.
Let’s look at another practical example. A forex trader purchases 100GBP at 1.3USD per GBP. If there is a rise in the value of the GBP/USD currency pair, and it is now 1.4USD per GBP, the profit on this trade would be ($1.4 – $1.3) X 100 = 10$. Thus, selling a 100GBP for 1.4USD (1.4USDX100= 140USD) will gain a profit of $10 since the initial price of 100GBP was 1.3USD per GBP.
With the securitization of the financial industry a vast universe of possibilities has opened up, making it possible for the modern trader to trade forex, futures, options, swaps, and forwards as well.
Why Trade Forex?
Forex trading is exciting but will make you feel slightly overwhelmed with the vast amount of knowledge coming your way. It is this sheer amount of information that makes almost 90% of traders give up before understanding what forex trading is. It is recommendable to read articles like this to get started faster and to not give up so fast.
If you are one of the 10% who believe they can make it, then here’s what you should be looking forward to:
- Independence: When trading forex, you become a financially independent person. You don’t have to worry about performing redundant tasks for a boss or have to work with incompetent co-workers.
- Endless Financial Possibilities: With a winning strategy, you will make immense financial gains. You can easily make huge profits by taking on money from investors and boost your earnings.
- Remote Location: To trade forex you just need a laptop and an internet connection. You’ll be able to trade from any location in the world. It is location independent. It’s a known fact that movies can dramatize the whole forex experience, making people think that they need 3 or 4 monitors, but it is really not the case.
- Challenged Intellectually: As a forex trader you need to constantly update your knowledge of financial markets. This might mean reading many books or taking on courses to enhance your skills.
Forex vs Stocks
You might be wondering why on earth you have to go through such a steep forex learning curve when you can just as well trade the stock markets. A market which is accessible far easier than the forex market and has some huge growing potential by investing in the weed stocks, gold stocks etc. If you are eager to start trading stocks, according to this article by business24-7 you should first read and learn how to invest in stock market before investing any money.
And the answer is simply: the cost involved. FX brokers, unlike stockbrokers, do not charge data commissions, trading fees or regulatory fees. Instead fees or commissions are earned through spreads.
The spread is the price difference between how much the trader buys a currency pair for and how much they then sell it for.
For example. The spread for the GBP/USD is 1.2901 – 1.2905. This means that at a particular time the forex trader can purchase the GBP at 1.2905USD and can sell it for 1.2901USD. Thus, the broker make money by adding a tiny percentage or a tiny amount to the spread.
Also, stocks are mostly influenced by macroeconomics, currency exchanges, managerial teams and many more factors, while currencies are in majority influenced by macroeconomics.
Another huge advantage of the forex market is that it is not influenced by time, as the forex markets are open 24/7 Monday to Friday.
To be a successful forex trader, you must be diligent and dedicated, since traders in the top game believe perseverance, emotional control, and adaptability is a must. If you are still willing to carry out forex currency trading, rest assured that it can become a very fruitful business for you. No matter what, you will still gain a lot of knowledge in trading and learn to build your own investment strategy.