Forex is the foreign exchange market, and trading forex refers to the buying and selling of foreign currencies in this market. Getting into this type of trading can seem complicated to a complete beginner, but rest assured that it is simpler than you think. Here is a short guide for those interested in getting into trading forex.
The first factor to consider is how to get started actually trading currency. This could not be simpler, as most trading is done through online brokers who you sign up to. You can research to find the one which best suits you, but be sure to look at usability, leverage offered and reliability.
It is also possible to open a demo account on many platforms, which allows you to practise trading without investing any ‘real’ money. This is a good way to get started and learn how the market works.
Once you have set up your personal account, you can start to look at which currencies you would like to trade in. The forex market operates on global exchange rates fluctuating, with profits made through selling currency when its value rises against another currency.
You could, for example, buy euros with pounds in the hope that the euro will rise in value against the pound, and then sell the euros on for a profit if they do rise. There are plenty of websites with live exchange rates should you wish to check how they work before you start.
Trading strategies vary when trading forex, and usually take a fair bit of research and experience to develop. Without a strategy you are unlikely to make money in the long run, since currency movements can be very unpredictable. You should therefore begin to look at all the factors which affect the value of different currencies.
One recurring factor which affects value is big political events such as elections. Events like these can often cause currency value to sharply rise or fall, thus making the market an even more volatile place to trade. Volatility can lead to very large and swift profits if you invest in the right currency, but also to large losses if you invest in the wrong one.
Know the Risks
Trading forex without properly managing the risks and your funds equates to gambling, and is likely to lose you money. Those who make money from forex do so because they have done research and developed a trading strategy which works for them in the long run (whilst also factoring in losses).
When starting out, you should invest small amounts which you can afford to lose in order to reduce risk as much as possible. As a highly volatile market, currency can fluctuate fast and unpredictably, so use logic rather than emotion when investing, and know that no investment is a guaranteed profit.
The forex market can be a challenging yet exciting way of investing money. Be cautious if you are just starting out, and research as much as possible before looking to make money.