How To Be A Foreign Exchange Trader
The value of currencies goes up and down on a daily basis and you can potentially profit from the movement of these currencies. In the past, foreign exchange transactions occurred exclusively between big financial institutions, corporations, and brokers. But, with improvements in technology, specifically when it comes to online trading, the IC Markets has opened up to retail traders.
Forex in a nutshell
Foreign exchange is the biggest financial market in the world, with an average trading volume of US $4 trillion on a daily basis. It is so big that the pooled trading volume of the equity and futures markets merely equal a quarter of the currency market. The big size of this financial market results to increased liquidity and lower transaction cost. The market is open twenty-four hours a day, around 6 days weekly, and therefore allows you to trade currencies and keep your day job. You may also trade on leverage. Which means that you can hold a sizable position for a much smaller capital. Using leverage can magnify profits, but it can also magnify losses.
How to start trading Forex
Forex transactions are typically carried out through a broker. There are two kinds of brokers, namely, market makers, that will set bid/ask prices and behave as counterparty to your trade, and electronic communications network or ECNs, which don't set prices, but instead passes on prices from a number of market participants. ECNs offer traders direct access to other traders or investors in the Forex market. Many traders prefer true ECN brokers since they're better in terms of transparency and at the same time, typically offer narrower spreads.
Forex is rewarding if you have a good grasp of what you are supposed to do. Get instruction from a Forex mentor or by reading publications about trading currencies. As a trader you will need to construct your own techniques, but it can be valuable to have some professional direction when you are just starting out. You need to practice with a demo account before you decide to trade by means of real money. This way, you obtain preliminary experience and confidence without shedding real money.
Is trading in the Forex market risky?
Yes, the Forex market is risky. However, Forex risks could be measured, and thus , for the most part, can be managed accordingly. Learning the dynamics of the market by studying both fundamental and technical analysis will help you control your risks properly. Risking not more than two percent of your total capital for each trade will also help you stay away from substantial losses. Even though trading in the Forex market is fundamentally risky, having a disciplined approach and good trading practices will produce considerable rewards.
Published on Aug 8, 2013
However, as technologies improved, specifically with regards to online trading, the currency market has opened up to retail traders.