‘Forex’ Trading Demystified

When a person is looking to build their capital, trading is one of the first things to come to mind for many. And upon researching the profession, ‘forex’ tends to be the first subject to become known.

Bloomberg reports that the rollout of COVID-19 vaccines around the world is causing a “vaccine trade spread.” In the UK, for instance, the vaccination rate of 15.8 doses per every 100 people has increased the value of the pound. Conversely, the European Union’s 3.2 dose rate has weighed the euro down. As a result, traders are seeing more chances to turn a profit in forex in these currency movements.

So if you’ve been considering trying out forex for a while now, this is the perfect time to begin. And with this brief but simple guide, you can get started in no time.

So, what is ‘forex’ exactly?

If you’ve ever exchanged one currency for another, the forex market would have determined the exchange rate. And if you’re familiar with exchange rates, you know that they fluctuate constantly. The forex market allows you to profit from those fluctuations.

In forex, currencies are grouped into ‘currency pairs,’ with each containing one ‘base’ currency and one ‘quote’ currency. For example, in the currency pair of the British pound and US dollar (GBP/USD), the first currency denoted is the base currency.

By quoting GBP/USD at 1.38, it would mean you’d need $1.38 to buy £1, and vice versa. If the exchange rate increases, this implies a corresponding increase in the value of the base currency. Similarly, this value would fall if the exchange rate decreases. Traders profit by buying currencies that they think may increase in value, and getting rid of currencies that won’t.

Depending on your goals, you can trade forex in 3 ways. For instance, Market Business News explains that the spot market allows for the immediate exchange of currencies based on real-time supply and demand. Meanwhile, the forward and futures markets let you exchange currencies with another trader for a fixed amount on a future date. Unlike the futures market, however, contracts made in the forward market are private.

Why trade forex?

After weighing the pros and cons of investing in forex versus other forms of investment, you may discover that it offers many exciting opportunities that can’t be found anywhere else.

For one, thanks to a highly convenient and efficient system, you can trade remotely 24 hours a day, 5 days a week. FXCM emphasises that you can trade forex whenever and wherever you want, unlike at the stock exchange, where you can only trade during business hours. This is because trade is conducted over a global network of computers, and is always active in at least one time zone.

Meanwhile, the high volume of trade corresponds to low-risk transactions. And, being a global market, forex deals with a large variety of traders and currencies, increasing liquidity and lowering transaction costs. This means you can speculate more without breaking the bank.

How do I get started?

Fortunately, all you need to begin is a broker and a device with an internet connection. However, given the fast pace of forex, consider taking the time to research more about currency pairs and other particular market mechanisms. Afterwards, you can look for the right broker to help you come up with a solid trading strategy.

As previously discussed here on WBTrading, both steps are crucial to further decreasing the risk of your trading decisions. After all, nearly 85% of traders lose money on speculation, so coming up with an educated plan can definitely propel you to the top 15% of forex traders.

Finally, it’s essential to stick to your plan. Trust the work you put into it, keep emotions out of your decisions, and take it slow. Eventually, after building your experience and confidence, feel free to explore more of what you can do in the exciting world of forex.

It’s also important to know your limits. If you feel uncomfortable at any point, take a step back, reassess, and reformulate your plans if need be.

I hope that helps!

– To your success.

Will, and team.

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