Forex Trading Basics
What is Forex?
The foreign exchange, also known as the FX market or forex market is a market where buying and selling of currencies takes place. Not just local currencies, but currencies from all over the world. How can you make money off of the forex market? For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.
What are the differences between the stock market and Forex?
Well, first of all, the stock market is where stocks are sold and bought whereas the forex market involves trade of currencies.
The forex market is much larger than the stock exchange. Almost two trillion dollars are traded daily in the forex market. The forex market is one that involves governments, banks, financial institutions and those similar types of institutions from other countries.
One characteristic that differentiates the forex market from the stock market is that What is traded, bought and sold on the forex market is something that can easily be liquidated. This means that it can be turned back to cash fast, or often that it is actually going to be cash.
Another difference between the stock market and the Forex is that Forex trading has a much higher leverage than the stock market. When someone decides to invest in the Forex, they can expect much higher profits than the stock market, especially as their level of experience increases.
Being a global market, the forex exchange operates at twenty four hours a day. This is because the various countries involved in currency trade are located in so many different time zones. The stock exchange on the other hand is only open during the business day, and closes on banking holidays and weekends.
This are just some of the many differences between the stock and forex markets. For those who want to get started in the forex trade, some brokers provide the service of trading using the mini-forex system. It requires a smaller initial deposit usually of around $100, therefore you have less chances of losing a lot of money.
Terminologies and symbols on Forex
For a novice trader, forex can be a complex jungle of terminologies and symbols. It is therefore a good idea to use an experienced broker to transact your investments as well as educate you on what this terminologies mean. Such brokers will provide excellent advice since they have invaluable experience gathered over time. Some names in the forex market are indicated using symbols.
In such cases, the first half of the symbol indicates one currency, and the other half is the second currency that is being used. The symbol “usdjpy” means “US dollars” and Japanese yen. It is important to learn what currency symbols mean when learning about the Forex. There are many books and websites dedicated on teaching traders about Forex trading.
How to choose a broker?
Before choosing a broker to transact your deals in the forex market, certain factors should be considered. Choose a broker that offers low spreads. The spread is calculated in pips, or the difference between the price at which currency can be purchased and the price it can be sold at any given time.
Another thing to consider is whether the broker is backed by a well known financial institution. Don’t bother with brokers who aren’t. Also, look only for brokers that are registered with the Futures Commission Merchant (FCM) who are regulated by the Commodity Futures Trading Commission (CFTC). This details will ensure that you are dealing with a reliable and trustworthy broker, who will have your best interests at heart when trading on the Forex.
Dealing in the Forex market requires that the broker has access to real time data, such as the latest charts, graphs and news from the market. Confirm whether the broker has access to this facilities as they are crucial in making accurate Forex forecasting. Also, look for dealers who offer accounts that allow for smaller minimum deposits, to allow you trade at an amount that you are able to afford.