Everybody already knows such term as Forex, but not everybody knows how the forex exchange works. What are the nuances of this market, and why is it so popular among progressive economists? It's time to deal with this question and make your conclusions.
What is Forex?
Forex is a speculative market, where the currency is a commodity. That is, the process of trading is built on the exchange of currencies of different countries. Anyone can become a participant in trading, but it is not as simple as it seems at first sight, because the forex market has become a unique segment of the modern economy, where many factors are linked together. The slightest change in the situation affects the quotes of a particular currency.
It may seem that trading in this market is tied to unpredictability and emotionality, but it is not. Several factors cause any movement of the rate up or down. For some professional traders, it becomes pointers and helps to ensure a stable income.
To begin with, to understand how forex works, you need to study the mechanisms and tools of trading, which are involved in the market. If the main commodity is the currency, then brokers are the participants of trading. Most often, this group is represented by financial companies or banks, which have direct access to. Forex market is an over-the-counter market; that is, there is no certain place where the trades are conducted; it has no single centre. That is why Forex is considered a unique phenomenon because it exists only in virtual space.
The market itself was formed recently. In the 70s of the 20th century, the U.S. government abandoned the rigid pegging of its currency to gold. The development of technology has given the world a worldwide network. Thus, currency quotations became more flexible, and Forex began to grow and develop rapidly. Today, anyone can add a beautiful term "trader" to his summary of personal merits and enter the world of currency international financial relations.
First steps in the market
Although Forex is happy to welcome anyone, there is nothing to do without certain knowledge, so the profession of a trader will require an in-depth study of trading mechanisms and methods of analysis of the market situation.
Successful and efficient currency trading will be a fact if you have the following qualities:
Ability to analyze the situation. The currency market is influenced by many factors that can change the currency rate within a few hours or even seconds. A trader has to work with a tremendous amount of information, which will be the main factor determining the trading results. Sometimes the political situation or natural phenomena can also change the currency quotation of a certain country, so the ability to correctly analyze the incoming information is one of the most important principles of trading in the market.
Knowledge of market fundamentals. Even though trading itself is fully automated, any trader works according to his strategy. And only the understanding of market fundamentals will help to develop it. For example, a trade can be profitable, or it can bring losses, but only the total amount earned for a certain period is taken into account. So, without a fundamental understanding of trading mechanisms, you will not be able to build your method of buying and selling. The currency is the product, which depends on external factors.
Psychological attitude. Forex market belongs to the type of activity that can bring high profits in a short period, but the risk of losing all the money is also quite high. So, a beginner trader needs to understand that after a successful trading day, there may be a succession of evil days, and be prepared for the fact that emotionality may prevent reasonable behaviour in the market.
Risk management. As mentioned above, you will not only make money in the market but also lose. Therefore, it is essential to learn how to manage your capital and know the basics of risk management. Some traders keep some of their initial capital as collateral to continue trading, while others use fractional schemes to distribute their funds between investing and saving. Which way you choose depends on which strategy you prefer.
Discipline. The exchange is the same job, so you should not look into the trading terminal once a week and hope for a stable profit. Depending on the strategy, you will spend in this space all day or only a few hours, but "go to work" will have to be regular.
If you decide to trade currency seriously, you need to understand that this work is on the shoulder only for those who are ready to give it to her with full dedication. Studying analysis methods, developing a strategy and closely monitoring market changes - this is what the profession of a trader will require from you. And with a severe approach and reasonable attitude, Forex can bring you a stable and decent income.
Where does Forex begin?
To start trading on the Forex market, a trader needs to sign a contract with a broker that will provide access to the virtual trading space. The advantage of such a scheme is that the leverage from the broker company allows you to start your business with minimal investment. For example, the deposit may not exceed one hundred dollars, and the broker will provide the necessary amount for the trading process to make the profit more significant.
Then the trader chooses the currency pair he is going to work with. It can be a classic variant of USD and EUR or more exotic currency. It all depends on what strategy you are going to use. For long-term profits, it is better to take a more stable rate, where minor price changes will not strongly affect the profits. Currency trading is a complex and ambiguous process, so there is no general recommendation for doing this kind of business. Of course, you can highlight a few essential points, which should be studied by any trader, because they form the basis for successful work with currency.
One of these points is to study the trading terminal. All operations are performed with the help of special software, which is called a trading terminal. It displays all the information about currency quotes at the moment and the latest rate changes. With the help of built-in functions, you can conduct market analysis, collect data and implement your methods of quotes prediction.