Every once in a while, it’s important to double back and remind brand new readers what Forex is and how it works. This will all be new for most readers, but as this site is always increasing its readership, guides like these prove helpful to many.
This won’t be a guide that goes into great detail (that’s what the rest of the site is for), but for people simply seeking a clear introduction to Forex trading, this is a great place to begin.
What is Forex?
There are a few ways to answer that question. From a historical perspective, Forex is the trade of diverse international currencies. Forex, as a term, comes from the words “Foreign Exchange”. Foreign currencies are traded one for another around the clock.
What’s more, they are exchanged at a variety of locations and levels, from tourists trying to trade their US dollars to Euros so they can visit the Eiffel Tower, to national governments exchanging Pounds Sterling for Yen in order to make good on complex trade agreements.
So that’s where the word comes from, but that doesn’t have a lot to do with the trading form known also as Forex. Forex trading is a kind of day trading. It has existed in some form for more than 100 years, but only since the advent of the Internet has it found a new life and a new usership. Forex traders make speculations on how currency values are going to change, relative to one another, in the immediate future.
So, a user might select the US Dollar and the Euro, observe the current price of both, and speculate upon how the value of one will change against the other within a certain period of time. Forex trading can be overwhelming if you’re newbie, but here are some tips to get started.
How do investments happen?
Forex Investments happen by first finding a forex broker online. The broker handles the financing, the trading platform, and all of the technical details that make this fast paced form of investment possible. Because thousands of investments can (and are) made every second, it takes a lot of firepower to keep an Internet operation like this up and running.
Once you’ve selected your broker, you’ll create an account. This will require you to input some basic information and to provide a bank account from which funds may be diverted and paid.
At this point, you can select a demo account, which will let you learn how these investments go without risking any of your actual money. You can do this however long you please. Then real investments are initiated, wherein you invest the minimum investment amount and pin it to speculations based on real currency values.
If you guess correctly how specific values will increase or decline, relative to specific short time periods, you will receive dividends. Losses are incurred the same way.
Once you feel comfortable dominating your demo account, you can switch to live account to start trading. Make sure you don’t leverage too much at the beginning as small currency variances can incur into great losses.
Ideally you should stick to one currency pair (i.e. USD/EUR) in order to focus your investments, analyse the fluctuations on graphs (technical analysis) and also absorb as much news referring that pair as possible.
Although in finance you’ll hear is all about diversification and not “put all eggs in one basket”, when you are a beginner in forex it might be better to “put all eggs in one basket, and watch that basket”.
Forex transactions can happen as quickly or slowly as you are comfortable with. Depending on your currency knowledge and Forex experience, you can gain or lose money quickly, so it’s best to spend some time learning the ropes. But for people seeking fast yielding investment, there is almost no other investment option with this level of fast growth potential.