Need to Understand Forex and Forex Trading for Beginners
What is Forex?
So the headlines are that you can actively engage in Forex trading, and with the right techniques, you just might prove to be the next big challenge for Alexander Elder and George Soros, the gurus of Forex trading.
If you have money that you can invest and if you ready to take the required associated risk, Forex Investment may prove to be the biggest turn of your life. Like any other investment perspective, the key is to know about your investment area as much as you can.
So what is Forex Investment? Forex or Foreign Exchange trading is the fluctuation between currency pairs on which profit or loss is determined.
Before explaining the process through an example, let me clarify. Unlike stock trading, where a large number of stocks either of a single company or of different ones are bought and sold based on the price fluctuations of the invested company stock. Forex is bought in pairs such as USD/JPY or EUR/USD, etc. The point of these pairs is that while you will be buying one currency, you will also be selling the other.
For example, if I invest in the EUR/USD currency pair, thinking that the value of Euros will increase against dollars, and if the value does rise as expected, I can always sell back my Euro and bag in the profits.
It is essential to mention at this point that while Forex may simply rain money for you, one wrong move can also bring about a high risk of losses as well.
Season investors use tools such as technical and fundamental analysis which helps them to analyze the future of the currency pair.
There was a time when forex trading was considered something elites did and some of them even made a name out of it through intelligently investing in currencies, and practically carving out fortunes of this investment. The only reason many of us have stayed back from this form of investment is because of not knowing or staying in the dark as to what Forex actually was and how it worked.
Like any other business in which you invest, the prerequisite always remains with knowing about your investment as much as you can. So quickly getting on with the basics, let us start with what is Forex?
All of you may have heard about fluctuations in foreign currencies that take place often nowadays, with one currency devaluating, while the other strengthens its position. Forex or Foreign exchange is the simple trading of currencies, where investors profit and even at times suffer losses based on the currency movements they hold.
Understanding of the Forex Market:
Understanding the potential of the forex market is easy. Its daily trading volume averagely rests at around $3.2 trillion. What is encouraging today is the fact that anyone can have their share in this huge profit potential investment market. One common question often asked is if forex trading is similar to stock trading. Well, it is not! And here is why
- First of all the firm you choose through which you will be trading will not charge any commission. You need to pay only the ask/bid spreads.
- The option of when and how to trade is present in your own hands. The market literally operates 24 hours round.
- Investors have the option of trading on leverage, however, beware that this literally magnifies your investment potential, equally enlarging your profits and your losses as well.
- You can start by focusing on a few currencies only irrespective of stock trading where a lot of shares moved daily.
- Also since accessibility is no problem, you do not require a large amount to invest. You can start with a little saving to spare.
Difference between Forex and Other Investment:
What makes forex different from other investment types is that you deal in pairs. While you are buying one currency, you will be selling the other. Forex currencies for investment quoted in pairs, like EUR/USD or USD/JPY. The exchange rate will be the purchase price between the two currency pairs.
Traders through applying different analysis predict the currencies on which they should invest in. For example, through technical analysis, currencies charts prepared based on past movements of currencies to predict those future activities. There are other ways through which investors analyze the current & future currency trends; however, this method owed to its effectiveness is more popular.
Likewise, another way to predict future movements of currencies is the fundamental analysis. For that, you must consider the political, economic and social events. These factors may affect the prices of different currencies. Investors always stay in touch with all related news. Forex community provides assistance about the effects it might bring upon their investments.
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