Currency trading has exploded in popularity over the past few years, with more and more beginner and seasoned investors turning to Forex. It is also fairly easy to learn, making it more attractive to inexperienced investors.
What is Forex?
Currency trading is known as Forex or foreign exchange. In simple terms, it is the buying and selling of currency, where profits are made with the rise and fall of exchange rates. Currencies are paired up, with most forex markets offering all major currencies across the globe.
As a very simple example, let’s assume you have $10. You find a pairing you like, Dollars and Pounds, and you buy Pounds with your $10. The exchange rate means you might get £8 for your $10.
You then wait for the Pound to strengthen and sell your Pounds back for Dollars. You profit by selling your Pounds back for more than you bought them, and you finish with more Dollars than you started with, the currency you want. This is a very simple example, but it is the gist of what you are trying to achieve.
We want to help you on your forex journey. This guide will teach you what currency is and the basics for getting started.
What are Trading Pairs?
There are around 70 different trading pairs to choose from when buying and selling currency. Forex differs from buying stock as stocks are not paired with anything; you purchase them, and the company’s value determines their value. You can also only buy and sell stocks in one currency.
Trading pairs allow you to buy and sell a variety of currencies, in particular the biggest ones like the Euro, Pound, and Dollar.
Pros of Trading Forex
There are multiple pros to trading forex; it doesn’t matter if you are a long-term investor or just starting. What is very appealing to new traders is that you don’t need a huge budget to start, and you can go as big or as small as you want.
A massive plus when trading currency is how liquid it is. This means that so much currency is being bought and sold every day that it is very easy to enter and leave a position almost whenever you want.
The same thing can’t be said about stocks, which is why new traders or those with smaller budgets like Forex. You can start small, buy and trade a bit, and then leave with a small profit. The risk is minimal, and you still have a good chance of making a profit.
While stock markets are open for quite a lot of the day, forex markets never close. There is no need to wait for the bell to ring to begin your trades. There are offices and markets across the globe, letting you buy and sell whenever you choose.
This gives you much more control over when you want to get in and when you want to get out again, as you can decide. Stock markets tie you into certain times, which can sometimes be detrimental to your investment if you can’t get out when you want to.
You Can Start Small
With the use of leverage and the ever-changing exchange rates, you can start your forex journey with very little money. You can start as small as having enough of one currency to buy one unit of another currency and then trade back again.
This makes it exponentially more appealing to new investors who are often wary of investing large sums of money into a brand new investment. You can start small and “practice” before deciding if you want to invest more or not. Forex is also great for diversifying your portfolio, and the small investment allows you to see how it affects your portfolio.
3 Things To Know Before Becoming A Forex Trader
Before you begin your forex trading journey, it is important to fully understand how the markets work and how you can make money. There are numerous courses and videos available to help you on your journey.
Trading forex also requires time; as mentioned, exchange rates are changing minute by minute almost, meaning your investment is changing just as quickly. Trading forex is not something you can buy and then forget about; you need to be able to commit the time.
Online trading is making the possibility of becoming a forex trader more accessible. Forex trading can be a decent side hustle or a primary income stream for those who understand the markets.
With income possibilities over $1,000 per month, depending on the strategies and investment capital used, it’s evident why more people would like a piece of the pie.
To make a profit, however, traders must understand what they’re getting into before using their trading as a source of income.
Build Capital To Build Wealth
One of the most important things about starting up a potential income stream is that it inevitably needs some start-up capital. For beginner forex traders, a small investment will go a long way if used wisely, instead of placing a large trade and losing money.
Building up your funds is a fundamental investment rule, allowing traders to be patient and not trade with their emotions. It’s also critical that the funds used in trading are not emergency savings or funds required to run a household or other business.
Traders are recommended to only trade with their surplus, as there is a high-risk ratio irrespective of the market. The goal of a forex trader is to preserve and grow the capital.
Learn The Lingo
For those new to Forex, one of the first steps is to know what it’s all about when a blog or tutorial refers to pips, spread, and leverage, to name just a few.
According to ConnectFX.Org, one of the fastest ways to learn all the vocabulary required to make good ground on the forex journey is by joining a reputable trading site and getting started on a demo account. These are not just great for learning different strategies and seeing how trades take place; they also happen to be a great spot to pick up trading lingo.
Many of these sites also provide a host of information on their online libraries and trading forums where beginners can chat with more experienced brokers on topics they don’t quite understand yet.
For traders, seeing a trade play out according to a particular strategy is one of the most rewarding things about the business.
Ease Of Trading
One of the reasons why investors enjoy trading is the ease of trade. Online trading bridges the gap between traders and brokers, allowing instant instructions to be performed.
The forex market never sleeps, and while the market might close in certain jurisdictions, there is always some part of the world that’s still trading. For traders, this allows them to dabble in some exotic currencies too.
The trading speed is also worth considering, thanks to the market’s liquidity. This makes it possible for traders to enter and exit trades at a moment’s notice.
Trading as a leading source of income or as a side hustle is not only lucrative for those who invest time and money in upskilling themselves but can also be a way to build on your wealth portfolio.
3 Signs You’re Ready To Start Trading
It is important that anyone considering beginning trading, either as a career or as a hobby, waits until they are ready before they begin placing any trades. Below are three sure-fire signs that you are ready to start trading in Forex, stocks, and the overall financial market.
- You Have Funds To Invest
- You Have Clear Investment Goals In Mind
- You Have A Good Understanding Of What Trading Entails
- Practice with a Demo Account
You Have Funds To Invest
Before considering beginning a career in trading, you need to have funds available to trade. You don’t necessarily need access to a vast reserve of funds – that depends on exactly what kind of trading you want to be involved in. However, the less money you have in your trading account, your trading options are more limited.
For example, if you are extremely limited in terms of the funds that you have access to, there are always options like penny stocks that require very few resources to take advantage of.
The less money you invest, the lower your returns will be – unless you get really lucky.
However, regardless of your starting position, starting small when you begin investing is always a good idea. You don’t need to risk losing significant sums of money.
You Have Clear Investment Goals In Mind
Before you start investing, you must have realistic expectations for what you can achieve. There are no guarantees in the world of investing.
It’s not like gambling; investing is not a matter of random chance, but there is always the potential for an investment to turn sour. If you enter this expecting a guaranteed path to wealth and riches, you risk being disappointed.
There is nothing wrong with aspiring to one day make a significant return on your investment, but you will need to take smaller steps to get there. When setting goals, don’t try to push yourself to achieve the maximum level of success immediately.
You Have A Good Understanding Of What Trading Entails
Before placing trades, you must take the time to find precisely what trading entails. People who skip this step of the process are the ones who inevitably end up bumping up against predictable and easily-avoided problems.
It is imperative that you do your homework before you begin placing trades and that you know exactly what you are doing when you put down your first trade.
Another thing to consider is whether you will trade in stocks or options. While trading in stocks is arguably simpler, options offer bigger multiples and can produce bigger payouts for an investor.
You will need to read up on both types of investment and decide which one is best suited to your investment goals. Investors who don’t take the time to establish exactly what forms of trading there are and how to choose between them are much more likely to run into problems throughout their trading career.
Practice with a Demo Account
Most online brokers offer demo accounts. These are excellent places to begin your trading career. Take your time and practice with a demo trading account until you understand how trading works.
Trading can be profitable, but it’s not something to rush into. Be careful and move slowly. That way, you are assured of success in the long term.
How to Choose The Right Trading Platform
The foreign exchange market, also known as Forex, is the most liquid market in the world, generating a staggering $5 trillion in transactions each day. It enables market participants to purchase, sell, and speculate on different currency pairs. The market comprises many different participants, including the countries’ central banks, various commercial firms, investment companies, and hedge funds.
The market is open to everyone, including retail investors with more limited experience. However, retail traders must first find a broker with decent enough trading software before they can start trading because the foreign exchange markets lack a central marketplace.
Different trading platforms are available on the web. Third-party companies like MetaQuotes create some, while others are developed in-house by the online brokerages themselves.
Furthermore, such platforms enable you to trade in different instruments, including currency pairs, stocks, soft and hard commodities, and bonds. Here are some aspects that consider when selecting a good trading platform.
- Reliability and Security
- Supported Financial Instruments
- Functionality and Available Features
- The Platform’s Price and Fees
- Your Experience as a Trader Also Matters
Reliability and Security
Security is of utmost importance and should be a great priority of all retail investors who take trading seriously. The safety of your money and payments are crucial if you even want to stand a chance of becoming a successful trader.
Also worth checking is the licensing of the platform. The platform needs to have received authorization from a financial authority that enforces adequate regulations. Using a faulty, unregulated platform is more likely to result in huge losses when trading the markets.
Supported Financial Instruments
When choosing a platform, you must ensure it supports the financial instruments you are looking to invest in. Some platforms, such as MetaTrader 5, are more suitable for people who are looking to trade currency pairs on the foreign exchange markets.
Those interested in algorithmic trading should ensure their software of choice supports this option to begin with. Others support a broader spectrum of market options, including commodities, futures, bonds, stocks, and options. Such platforms are considered a better fit for people who are seeking to diversify their trading portfolios.
Functionality and Available Features
Another important thing to consider when choosing a platform is the type of order execution and the execution speed. The latter is particularly important when one trades on the foreign exchange markets because the prices of the currency pairs can change in a split second. Even a small movement in terms of pips can lead to hefty losses, especially when one trades with significant volumes.
Another essential thing is to check the features the platform supports. It is always good to have a broad enough choice of technical indicators, timeframes, and graphical objects. A good trading platform would also enable traders to test new trading strategies before using them. The interface should be user-friendly, especially if you are new to trading and are just beginning to learn.
The Platform’s Price and Fees
The price and potential charges for using it are worth checking out in advance. If a given software is associated with higher costs, these can quickly eat into the earnings you generate while trading the markets. This is especially valid for people who adopt the scalping approach where multiple short-term positions are opened and settled within a single trading day.
Such people will never generate sufficient earnings if the costs associated with using the trading software are too high. With that said, some of the most popular and broadly implemented trading platforms can be downloaded for free, with MetaTrader 4 and MetaTrader 5 being two of the prime examples.
Your Experience as a Trader Also Matters
Your level of knowledge and experience should also impact your choice of trading software. If you are a complete beginner, you should find a platform that enables you to practice in a demo format until you build sufficient experience and confidence to invest real money.
Also essential is to consider whether the software is proprietary or is available for commercial use. Many online brokerages develop their own platforms, while others use platforms created by companies that specialize exclusively in the development of online trading software. They lease their creations to the online brokers.
People who are new to trading are better off picking a commercial platform. If their first trading experience is built by using proprietary software, they will most probably face difficulties when changing brokerages in the future. On the other hand, if you use a commercial platform, you will be able to find your way around all trading sites that implement it.
3 Things to Always Remember As a Forex Trader
We believe it is! Forex trading is not just fun and games. Keeping an eye on the trends, you can earn money through this too. Isn’t that just too amazing?
Touching upon the basics, the forex market is all about buying and selling currencies. The world’s largest financial market is currently worth nearly $2 quadrillion. Working in currency pairs is a significantly liquid market, and working with strategic techniques, you can make good money!
Be Hands-on with the Market Basics
Taking place online as well as over the counter, it also deals with trades using futures. You cannot just start off forex trading out of nowhere. It is important to understand what happens and how it happens. Don’t take risks. They may seem too easy but be mindful before going for it.
Gives you an insight into how it works, if the currency you invested in strengthens against the other, you make profits. On the other side, if it falls against the pair, you would have to incur losses. Thus, it’s important to learn and then implement strategies!
Understand the Market Dynamics
Fluctuations within seconds and smooth for days. Forex trading trends have a lot of ups and downs! Read about the optimal pricing strategies and set what works the best for you. This will help you know when to exit and when to close off the trade.
Also, it is good to watch the other currency pairings, as this may help you make a change for better profits. Undoubtedly, practice makes it all perfect – but a look into south African brokers is a good take!
Demo Account Option Always Works
For beginners in forex trading precisely, one should spend ample time utilizing free demo – accounts. Most trading platforms let you have this offer before investing in real capital.
Do you know why this is encouraged? Do give it a try! This lets you have a look into how the real forex market works and be comfortable with currency trading. Also, one can freely implement the learned strategies and work out the diversified trading techniques.
George is Chief Market and Broker Analyst at brokertested.com. George is a well-rounded financial services professional experienced in fundamental and technical analysis, global macroeconomic research, foreign exchange and commodity markets, and an independent trader.
Before being recruited by brokertested.com, I served SVS Securities as Chief Market Analyst for two years. Earlier, he joined Morgan Stanley in Nov 2013 as Research Analyst.
Understood the basics? That’s what makes the true difference. Still, got any queries you are pondering upon? Feel free to leave us a comment in the section below, and we’ll surely get back to you within 24 hours.
Differences Between Swing and Day Trading
If you’re interested in financial trading, you might have come across swing and day trading concepts. Even though both are valid approaches, there are at least five relevant differences between these two popular styles. It’s essential to examine the main differences between the two to better understand them.
How do they differ? For starters, swing and day trading enthusiasts hold their assets for varying amounts of time. Plus, each uses leverage differently, takes on more or less risk, uses unique sets of tools, and works under contrasting schedules. Here’s a closer look at each of these trading methods.
Day trading is based on the concept of never holding security overnight, hence the name. Each session is closed out by selling all holdings and going to 100 percent cash in the brokerage account.
That’s not true for swing positions, which typically remain open for several market sessions or as long as a week. There are multiple reasons that people opt for longer or shorter holding times, but the main one is that overnight risk is zero for day traders, as noted below.
However, swing traders do not require constant monitoring, nor do they require large capital outlays.
A key distinction between day and swing positions is the amount of leverage. While it’s not a hard and fast rule, day trading typically sees more leveraged transactions compared to other trading styles to exploit small market movements more effectively.
Anyone closing out their positions before the end of the trading session has no risk of holding security overnight. That means they can wake up the next morning and not have to worry that their portfolio took a hit in the overnight markets.
On the other hand, swing traders nearly always have multiple-day holds, which exposes them to overnight price action.
While the threat of overnight value changes can take a toll, day trading exposes investors to high volatility within each session. That’s because short-term price action can make a huge difference in a position that’s only open for a few minutes. It’s fair to say that each kind of trader has his own version of risk.
Another important difference is related to traders’ tools to evaluate opportunities. Day traders often use technical charts and focus on pivots and various moving average lines to make buying and selling decisions.
For those with longer timeframes, using a combination of technical indicators and fundamental analysis is often more helpful. For example, if you’re planning to hold a security for two or three sessions, patterns like the famous head and shoulders can come in very handy.
If you choose to become a day trader, it’s best to engage in the activity full-time. For others, who don’t feel the need to close each session by going to cash, work can be part-time because there’s no need for constant price-watching and position monitoring. Both trading styles can be applied to a range of assets such as Forex, stocks, or crypto.
However, as we’ve discussed above, day trading and swing trading have certain differences that you should consider when considering which method to use. It’s also the case that market conditions for a particular asset class might favor one style over the other at any given time, and it’s your call to use whichever you choose.
Make sure you research your selected markets as much as possible before choosing a trading style to maximize your chances of success.
FAQs on Forex Trading
Here are some common questions on Forex Trading;
- Why Should Investors Be Careful With Unregulated Forex Brokers?
- Why The Traders Choosing Unregulated Forex Brokers?
- Are Unregulated Forex Brokers Scam?
- Does the cryptocurrency market affect the Forex market?
- Difference between Crypto Brokers and Forex Brokers
- Why Forex is a Way Bigger Market than Crypto?
- Are Safety and Regulation Better in Forex than Cryptocurrencies?
Why Should Investors Be Careful With Unregulated Forex Brokers?
Regulated and unregulated brokerages are both present in the forex market. You may find it difficult to choose between the numerous licensed brokers and the danger of dealing with an unregulated broker while looking for a broker to meet your specific requirements.
Numerous trustworthy forex brokers can be found online, each one of which proudly displays its regulatory credentials on its website. Because they are regulated, prospective investors see them as more trustworthy.
Despite this, numerous brokerages operate in offshore countries that are not subject to any regulation. It’s one of the main reasons why these brokers skip regulation since this is one method in which they may reduce their operating expenses.”
The cost of obtaining and keeping a license may run into millions of dollars, making it prohibitively expensive for individuals just starting in the brokerage business. In addition, many of these brokerages are located in tax havens, allowing them to reduce their tax burdens.
However, some unlicensed brokers have genuine economic reasons to avoid obtaining a regulatory license. Investment advisors who engage in fraud or questionable business activities may put their customers in financial jeopardy. There is limited recourse for traders who choose to invest with an unregulated trader, and they may incur considerable financial losses if they meet complications.
Why The Traders Choosing Unregulated Forex Brokers?
Investors who risk their money by trading with an unlicensed broker are taking a significant risk. ‘Choosing a registered broker protects traders against maltreatment and fraud, which is essential in any situation when things go awry.
It’s not a guarantee that your forex broker will treat you nicely, but having a regulated status helps to ensure investors that their money and personal information are secure.
Suppose a brokerage company goes out of business. In that case, investors who use a licensed broker may get cash compensation and peace of mind that their broker must adhere to all of the laws and regulations of their regulating body.
As a result, many investors wind up being defrauded since they either don’t know how important it is to choose a regulated broker or don’t pay enough care while selecting one.
Choosing a trustworthy and licensed broker requires a comprehensive research of the firm’s website to determine their regulating body and verify that their membership is legitimate.
What is stopping unlicensed brokers from obtaining a permit?
Other firms or people have no intention of operating legally and are merely scams. However, the cost of obtaining a license may go into the millions, and this can be a major roadblock to starting a new brokerage firm.
Are Unregulated Forex Brokers Scam?
On the Forex market, there are a lot of unlicensed brokers. They have something to offer their clients, and they can persuade them to join them. They are, in fact, highly active, and many individuals are willing to put their lives at stake for them. When they do this, they give a lot of power or promise instant achievement.
An unregulated brokerage firm can provide a wider range of trading goods and services than regulated organizations. The wide variety of trading items may seem to be a potential advantage. As a result, it is generally used to attract investors who participate in hazardous business in order to profit from their clients’ misfortune. There is limited, if any, remedy for a customer after he or she has fallen into a trap.
It is common for online Forex trading services to promise that after only a few days of instruction, you will be a successful Forex investor. For the most part, those who made investments in Forex have seen their money disappear. Here, we’ll take a look at how Forex fraudsters work.
Investing in alternative assets, such as precious metals or renewable energy, is possible via certain firms. These investments are supposed to provide big returns, but they also include a level of risk that isn’t often made clear to investors. Fraudsters are once again using these investments as a cover.
People who claim to be financial experts, lawyers, or government officials should also be on the lookout for scams. People who have lost money on trading platforms are being offered money in exchange for payment. In addition, this is an effort to deceive the public.
Be wary of managers who claim to be independent advisors. Deposits are often made to pay bogus returns on behalf of other customers who have advertised for the firm.
Fraudsters continue to prey on investors and ordinary traders. They either overlook the necessity of a registered broker or cheap costs, and exaggerated promises sway them. There’s nothing wrong with charging low rates. However, you should constantly examine the company’s online reviews.
Be wary of the emails that ask for personal information in exchange for trading signals that are nothing more than a scam to steal your personal information and convince you into depositing your money into a fraudulent account.
Does the cryptocurrency market affect the Forex market?
Cryptocurrencies are rapidly gaining popularity among investors, and this demand has not remained unnoticed by brokers.
More and more companies are trying to provide their clients with the opportunity to trade virtual currencies, thereby expanding the possibilities of trading. It would seem that CFD trading is an excellent option for cryptocurrencies – taking into account a huge speed of execution of transactions, the ability to use leverage, the reliability of trusted brokers, and the chance to benefit from orders and technical analysis.
When it comes to cryptocurrencies, a lot of people draw similarities with the Forex market. No wonder both of these tools are considered effective trading methods. However, there is no direct correlation between them, given that cryptos do not generally affect the Forex market.
Difference between Crypto Brokers and Forex Brokers
Cryptocurrency is a digital coin that represents the result of computer calculations. It is built on a blockchain system – a chain of information blocks. Cryptocurrency can be called electronic money – they are used to transfer digital money from person to person without an intermediary. Even though they cannot be touched or held in hands, they can be exchanged for quite ordinary money and perform other operations.
In other words, this is a means of payment that exists only on the Internet. It has no paper expression, and its value does not depend on the state.
Usually, to transfer money from one person to another, you need an intermediary – a bank. But in the case of cryptocurrency, it’s different as the bank does not participate in the exchange. In 2009, the first digital coin appeared – Bitcoin. Since then, the number of cryptocurrencies has been growing.
If we compare Top Online Forex Brokers to top crypto brokers, we could certainly discover many similarities and differences. When we talk about the impact of cryptocurrency on the Forex market, brokers play an important role.
Some Forex brokers are versatile, meaning that they can also offer trading with various cryptocurrencies. The same, however, is rare with crypto brokers. They mainly offer digital coins for trading. That being said, a majority of people choose Forex brokers to trade with cryptocurrencies at the same time.
Why Forex is a Way Bigger Market than Crypto?
One of the main reasons why cryptocurrencies cannot affect Forex is that the latter is a bigger market than its counterpart. FX trading engulfs a wide variety of currency pairs from USD to EUR, while in the case of cryptocurrencies, we can only point out some of them, including Bitcoin, Litecoin, and Ethereum. This field is still developing, while the Forex market has already been active for numerous years.
Keep in mind that Bitcoin only appeared in 2008, and a trading concept appeared way later. Cryptocurrencies, particularly Bitcoin, are volatile and subject to rapid fluctuations. Many people see the volatility as a risk, but at the same time, it could act as an advantage. The price of Bitcoin can be $50,000 and drop sharply in a few days. The same, however, can not be said about Forex as it is more stable than its counterpart.
Are Safety and Regulation Better in Forex than Cryptocurrencies?
In general, it can be said that cryptocurrencies are pretty safe. However, when we talk about regulations, cryptocurrencies are not regulated, and thus, they lack centralization. No central bank would have power and legitimacy over the market. Blockchain, which holds records for various transactions, cannot be forged.
Forex, in contrast, is firmly regulated. When you choose brokers, you need to ensure that these brokers are regulated by prominent entities, such as CySEC, and the FCA. Crypto brokers also require licenses.