Foreign exchange or FX Trading, commonly known as Forex, refers to converting one currency into another. One of the most actively traded markets in the world, Forex boasts an average daily trading volume of $5 trillion. To put it simply, Forex can be explained as a network of buyers and sellers who transfer currency between each other at a price that was previously agreed upon. Individuals, companies and central banks convert one currency into another through Forex, and if you have travelled abroad, you must have made a Forex transaction.
While most foreign exchanges are executed for practical purposes, a significant portion of currency conversion that is undertaken is aimed at earning a profit. Given that a huge amount of currency conversion takes place every day, it can make price movements of some currencies highly volatile. This volatility makes Forex so attractive to traders, since they promise a higher chance of high profits, albeit an increased risk.
Is Forex trading illegal?
Forex trading is mostly a legal business, but in some countries, Forex traders can work only through domestically licensed brokers. It is interesting to note that laws are created for Forex brokers, and not for traders, so Forex traders are protected in that way. Foreign exchange is an unregulated sector in many countries as compared to the stock market and other markets. With technological advancement, the Forex market has undergone major transformations over the last few decades. A massive increase in Internet usage and significant technological development has paved the way for enhanced flexibility in Forex trading. One can now enjoy the comfort of Forex trading from their own homes, using high-speed electronic communication through the Internet. But the mantra is to learn Forex trading step by step rather than attempting to master it all in one go.
Just like futures, stocks, or commodities trading, Forex trading is also legal. However, the regulation of Forex brokers is managed in the respective countries where their jurisdiction is. One must be wary of shady, unregulated brokers, apparent marketing techniques that are more like scams, “secret trading formulas” that promise quick fortunes, and so on.
Is Forex Trading Good For Beginners?
Any beginners’ guide to Forex trading will seem to be exciting and tricky in equal parts. While it is highly lucrative on the one hand, it also involves huge risks. If you are a newbie in this field, never ignore financial education. Also, it is crucial to not encourage unrealistic expectations. You should be adept at controlling your emotions, otherwise, you might be tempted to act irrationally. This will hamper your overall performance.
You can use the following trading methods, amongst others:
- Day trading
- Swing trading
The first two are highly aggressive; wherein all trading positions are closed before the end of the trading session. The trade frequency, however, differs for these two styles. Scalping is centred around taking advantage of the minor changes in price, often involving buying and selling within minutes, if not seconds! On the other hand, day traders may hold a position for up to several hours! While these two are very short-term trading methods, swing trading is a longer-term option, with positions held up to several weeks. Check out the beginners’ guide to Forex trading that are available online for better understanding.
Your trading style will determine the type of order you use. For example, “market” orders are used more by scalpers than swing traders, since these orders offer the best available price for instant entry to and exit from the market. When it comes to day trading or swing trading, “limit entry” orders will be more useful, as they allow the entry of traders into the market at a pre-determined price. Watch out for the best Forex trading platform for beginners to foray into the world of trading in a rewarding yet safe manner.
What Is The Best Strategy For Forex Trading For Beginners?
As Forex trading is more often than not, accompanied by leverage, it offers equal potential for profits as well as loss. Hence, it is crucial to use stop-loss orders which limits your losses even if the market is in an inconducive position. The Forex market has managed to gain considerable popularity amongst beginners, and especially in today’s times, it’s more accessible than ever before. You can rake in a lot of moolah by trading currencies, provided you use leverage and market trading wisely.
Grasping the fundamentals of Forex trading is a simple affair. However, deciding the kind of trader you want to be, and establishing your trading strategy accordingly, is a different ball-game altogether. First and foremost, learn Forex trading step and step; don’t try to rush things. The more you delve deeper into the intricacies of Forex and trading, the better trader you will be. Patient, dedication, and commitment are the key values with which you can keep learning more and improve your strategy accordingly. That way, you will acquire the tricks of the trade and make profits in the long run.
Can You Get Rich by Trading Forex?
Many retail traders look up to the Forex market as an easy route to make fast profits. However, the real picture, as revealed by statistics, is quite different. Not only do most aspiring Forex traders fail, but some even lose huge amounts of money. Leverage is like a double-edged sword that holds the promise of outsized profits but can also lead to substantial losses. Beginners may also fall prey to counterparty risks, platform malfunctions, sudden bursts of volatility, and so on. Forex trading is basically a skill that you will need to nurture over time. Shortcuts will get you nowhere, and you will also need a lot of experience and practice. Many newbies prefer to practice trading on a demo account till they figure out methods that work for them, and which they can comfortably execute. Keep an eye for the best Forex trading platforms for beginners to ensure a smooth entry into this world.
Lack of planning, training, discipline, not having a trading edge, and poor money management tools can prove disastrous to beginners. You may have the impression that most traders make it big from the word go, but on the contrary, only a handful of traders who show discipline in their practices, get success here.
The humungous size, liquidity, and the fact that currencies are prone to move in strong trends make the Forex market one of the most popular markets for speculation. Beginners should surely try their luck here, but without their minds being clouded by the misconception that it’s a get-rich-quick scheme.