A short guide to investing in the Forex Market

Forex currency exchange, better known as Forex, is the biggest international securities market. It is not confined to a specific location just like the stock exchange. It is made up of a network of traders, dealers, and various financial institutions. Some individuals and groups turn to the Forex market in order to move one currency to another for business purposes. However, the majority of the people involved in the Forex trade currencies in order to make profits.

Trading in Forex always involves two currencies

When you trade in the Forex market, you know that you need to look at a pair of currencies. The price, in one of the currencies, needed in order to purchase a unit of the other is known as the exchange rate. The exchange rate is stated up to 4 decimal places due to the fact that the pip or the smallest change in this market is 1/100 cent in U.S. dollars. The pip is the core of trading in Forex because it is the actual basis for the pricing in this market.

Trading in the Forex market can be risky and rewarding at the same time

Buyers in the Forex market give their bid price. The sellers, on the other hand, state their asking price. The difference or spread between these is around one to two pips for Forex wholesalers. The brokers or dealers in turn raise this spread from three up to twenty pips. The difference serves as their fee. Traders can only put up several hundred dollars for $100,000 worth of currency. This is known as a “lot”.

Say you purchase a lot consisting of euros at a price of $1.2500. You need to pay for 10 pips/euro. In this case, you risk a margin of $1000. Should the exchange rate increase to $1.2600, you gain a $720 profit. All this can happen in just a few seconds. However, it can also go the other way. If the value of the currency goes down, you can lose everything.

It is pretty easy to get into trading in the Forex market

Almost all trading in the Forex is carried out unregulated and online. The Securities and Exchange Commission of the United States recommends that you select a dealer that is a National Futures Association member. This group is self-regulated. This way, you get to open an online account where you can save or take out money via services such as PayPal. A reputable dealer provides their clients with immediate quotes and trading software. Because the market is open the entire day, you can conduct your trading anytime that is convenient to you.

Make sure that you know what you’re doing before trading

Trading in the Forex market is risky even to experienced investors. One mistake can cost you your entire savings. Which is why it is necessary to learn as much as you can about the market. There are many sources that you can access, from books to online articles such as this. One of the first things you need to know is how to interpret charts and analysis. You also need to be able to understand interest rates, bank policies, and even trade balances and how they affect exchange rates. If possible, set up a demo account to use to practice trading based on real Forex data. Once you are confident that you understand the concept, you can start investing actual money.