I HAVE NEVER TRADED FOREX
1. What is Forex?
Foreign exchange, also known as Forex or FX, is the market in which currencies are traded. The Forex market is the largest, most liquid financial market in the world, open 24 hours a day, five days a week.
As one major forex market closes, another one opens. According to GMT, for instance, forex trading hours move around the world like this: available in New York between 01:00 pm – 10:00 pm GMT; at 10:00 pm GMT Sydney comes online; Tokyo opens at 00:00 am and closes at 9:00 am GMT; and to complete the loop, London opens at 8:00 am and closes at 05:00 pm GMT
2. How Does Forex Trading Work?
Forex is traded in currency pairs. Common currency pairs are the Euro/US Dollar, US Dollar/Japanese Yen, Great British Pound/US Dollar, and Canadian Dollar/US Dollar. You buy one currency and automatically sell another. The goal is to make a profit by buying and selling currencies as their value increases and decreases.
Forex trading should not be confused with physical trading – it’s all online! You buy a currency online, sell another online, and you make a profit online. If you have a forex trading account, all your profit will be available there and you can withdraw your profit to your personal bank account anytime.
3. What Tools Do I Need To Trade Forex?
You only need a computer with internet connection and sign up to an online Forex broker. Open a free demo account or a funded live account. However, you should be equipped with proper Forex education and tools to minimise risks in the Forex market.
4. Who Trades Forex?
It is the versatility of the market participants that contribute to the high liquidity of the forex market. The forex market is built up and traded by the following key players:
Interbank Market - The largest commercial banks in the world and central banks.
Electronic Brokering Service (EBS) - The world's largest banks and some smaller banks conduct trades with each other directly, or by using electronic trading platform services provided by EBS, or by Reuters dealing 300 spot machine.
Hedge Funds - Private Investment partnerships open to a limited number of investors.
Commercial Companies - Non-financial institutions that exchange currencies for the sake of doing business and not for making a profit.
Retail ECNs - The electronic communications network provides direct access trading through a computer system.
Retail Forex Brokers - See 5. What is a forex broker?
Retail Traders - You
5. What Is A Forex Broker?
A Forex broker is an intermediary between you and the interbank market - networks of banks that trade with each other. Typically, a Forex broker will offer you a price from the banks that act as their liquidity provider.
Retail forex brokers typically allow traders to set up an account with a limited amount of assets and let them trade online through Internet-based trading platforms. Most trading is done via the spot currency market. Forex trading has been popularised among individual traders because Forex brokers have offered the chance to trade with margin accounts. These allow traders to effectively borrow capital to make a trade, and multiply the principal that they use to trade by large amounts, up to 500 times their initial capital.
6. What Is Margin?
What is known as a Forex margin is basically a good faith deposit that is needed to maintain open positions. A margin is not a fee or a transaction cost, but instead, a portion of your account equity set aside and assigned as a margin deposit. Trading on a margin can have different consequences. It can influence your trading experience both positively and negatively, with both profits and losses potentially being seriously augmented.
Your broker takes your margin deposit and then pools it with someone else's margin Forex deposits. Brokers do this in order to be able to place trades within the whole interbank network. A margin is often expressed as a percentage of the full amount of the chosen position. For instance, most Forex margin requirements are estimated to be: 2%, 1%, 0.5%, 0.25%. Based on the margin required by your FX broker, you can calculate the maximum leverage you can wield with the trading account you have.
7. What Is Leverage?
Leverage allows a client to trade without putting up the full amount. Instead, a margin amount is required. For example, 50:1 leverage, also known as 2% margin requirement, means £2,000 of equity is required to purchase an order worth £100,000. 400:1 leverage means £250 is required to purchase an order worth £100,000. Leverage increases both upside and downside to risk as the account is now that much more sensitive to price movements.
8. Is Forex Trading Expensive?
That depends on the leverage used and the amount of capital invested. You could invest a starting capital from as little as £100 but you will have to check with the forex brokers' minimum deposit requirement. It is important to remember that increasing leverage, increases risk; ultimately it depends on a trader’s tolerance to and management of risk. Skilled traders are able to minimise risk and maximise profit thorough analysis, a trading strategy that suits their style and wise money management.
9. How Do I Profit From Trading Forex?
Forex is traded in currency pairs. Common currency pairs are the Euro/US Dollar, US Dollar/Japanese Yen, Great British Pound/US Dollar, and Canadian Dollar/US Dollar. You buy one currency and automatically sell another. The goal is to make a profit by buying and selling currencies as their value increases and decreases. Essentially you will want the market to move in your favour. Forex trading allows you to profit if the market goes up (known as going long) or if the market goes down (known as going short).