If you live in Australia and want to buy something from the US, it would be treated as an import, and either you or the company you are buying from has to pay the money for it in US dollars. This means that an exchange of an equivalent amount of money in Australian dollars for the US dollars must happen for the purchasing. This is an example of forex trading. Similarly, when you travel to a different country, your local currency is useless as it won’t be accepted there. It would be best to convert your currency based on the exchange rates, done via forex.
WHAT IS FOREX TRADING?
Foreign Exchange Trading is also called forex, FX, or currency trading. Foreign Exchange is changing one currency to another for various reasons like tourism, commerce, trade, etc.
The foreign exchange market is the largest financial market where corporations, banks, governments, and speculators exchange currencies. Foreign Exchange Trading is highly profitable for those who understand the market and make decisions accordingly. It won’t go your way entirely from the beginning, but if you keep moving, learning, and gaining experiences, you can make a good amount of profit.
WHY FOREX TRADING?
- LARGE MARKET: The size and scale of the forex markets have to be its biggest benefit. It is the world’s largest financial market. Traders from all over the world buy and sell currency pairs at all times. Its large size also increases the scope of profitability.
- BEGINNER-FRIENDLY: It is easier to enter than other markets. It does not require a large initial investment, making it popular among people who trade as a hobby.
- OPEN 24 HOURS: Forex market functions 24 hours from Sunday to Friday. Therefore, trading in forex can fit anywhere in your daily routine.
- LOW TRANSACTION COST: Not only can you enter the forex market with little capital, but you also have to bear significantly less transaction costs.
- HIGH LIQUIDITY: In trading, liquidity refers to the ease with which assets can be sold or bought with little effect on the exchange rate. On a global scale, high volume and 24-hour availability make the forex market the most liquid financial trading market. Numerous buyers and sellers are looking to make a trade at any given time, making transactions quicker and easier.
- TECHNOLOGY: Compared to other trading markets, forex is new. So, it has adapted to the advanced technologies of trading quicker. The technology allows you to trade forex from your home or anywhere in the world with just an internet connection.
- HIGH VOLATILITY: Natural disasters, trade deals, political events, global economy, etc., influence the forex market. This can cause significant changes in the currency value and lead to a good profit. Even though this is a great advantage, it also comes with a high risk because the value can change in any direction.
Like any other market, it also has many risks along with benefits. It is essential to familiarize yourself with the disadvantages to know what you are getting yourself into and if it’s the right choice for you.
FX trading is not a get-rich-quick scheme. It requires a lot of strategy, knowledge, and understanding of the global market to be successful in it. You cannot look for instant results in trading.
Here are some suggestions if you are new to forex trading:
- Make sure to gather much information about it: General terminology, levels, patterns, etc.
- Start with creating a demo account and practice until you get confident enough to shift to live trading.
- Make strategies and goals and keep track of daily trading in a journal.
- Build money management and risk management skills to minimize the risks.
- Be patient.
