Welcome to the World of Forex

Sherrie Campbell  |

Simply put, Forex is a stock market. But the trading objects are not shares of companies and other securities. Forex trades with currencies. The turnover that happens in just one day on this market is several times higher than the one on the New York Stock Exchange, which is the largest in the world.

Another one difference is that the currency market doesn't exist physically; trading is performed electronically, using programs, predicting stock trends, and noticing Forex signals. Working time also does not exist – the market is open 24/7, but there are periods that are more convenient for trading than others.

Today, the largest investors are banks, corporations, insurance companies, etc. But, due to technology development, Forex trading became available to "mortals." For starting on the currency market, besides knowledge, you will need a computer with a good internet connection and some cash. This market has developed mostly thanks to the Internet.

How it Works

On Forex, you do the trading with currency pairs. You can imagine it as the world's largest exchange office where banks and other big financial players change the currency from one to the other. We would describe this as a virtual place where investors predict and use the growth or drop of some exchange rates, and they make a profit on that.

For creating a profit, investors can't just guess the movements on the market. Without a proper strategy and knowledge of the trade, it is possible to lose literally everything you have invested, in just one transaction. A few seconds is enough. But also, the invested funds can be doubled or even more than that, tripled, etc.

It is possible because of the opportunity that modest initial capital can be used for large investments. Further actions depend on the margins that a broker offers you. Trade costs are practically non-existent, and these are usually some negligible fees.

Can Demo Accounts Help

Most online trading programs will allow you to train your Forex skills by opening free demo accounts, which offer all the possibilities like real trading. First, you have to know what kind of investor you want to be - would you have a regular market account, just to buy and sell at the prevailing market prices; or you want a limit or stop loss account, which refers to the automatic closing of the position at the defined level of gain or loss. On the real Forex market, these serve to reduce risk but do not promise an enormous profit.

It takes a lot of exercise in demo programs so you can step on the Forex market with some trading experience. Until now, you probably realized that it is not betting and that predictions must be performed only on the basis of real facts, like currency movements, previous transactions, and trends.

Watch, Learn and Use Strategies

The currency market is unstoppable, and it will always be liquid. As one leaves, new players come. Something always happens. To stay on the Forex as long as possible, you'll need a good trading method and plan. There are many strategies which experienced players developed, and it's up to you to choose. You can also create your own style of trade, but it will take a lot of time until you get in the game, and say for sure: "This works." Until then, here are some proven strategies:

“One-minute“ (scalping) strategy

It can be a short and profitable trade if you stick to the plan. The buying and selling of currencies are done very quickly; trade positions are closing, and you're waiting until you get the next, positive signal for a new action.

Although it is excellent for beginners, many professional traders use this strategy too. It requires focus, and fast reflexes because it's all done in just a few clicks. Although the process is short, the preparation for it is long and detailed. Investors should carry out all the required analyzes, and to determine the moment when they will start the action.

Hedging strategy

This strategy works on the principle "I will not make much money, but I will not lose it either." The hedging of currency risk is the taking of actions aimed at minimizing the risks associated with the uncertainty of the currency prices. It means that, if you trade with one currency pair, you also hold positions for both buying and selling. In case of any unwanted action on the market, your funds will be safe.

“Daily charts“ strategy

On Forex, you choose the timeframe within which you will trade. Most reputable traders follow daily moves; these can give better predictions than short time frames. The only negative thing with this strategy is that it can't bring a quick profit.

But it also reduces the possibility of failure, because it has fewer false signals than short-term trades. You don't have to trade every day, but you can keep track of daily movements, based on which you'll get detailed market analyzes. Someone just prefers large, but single and quality investment.

The choice of strategies mainly depends on trader's preferences. Quantity or quality, both can make a profit, but also a loss. The only question is how much you are patient and ready to risk?

DISCLOSURE: No financial interest


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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