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How to Invest Money How to Invest in ETFs How to Invest in Index Funds How to start Forex Trading How to Pick Shares How to Report a Forex Broker How to be Consistent in Forex. Forex trading can plainly be described as the trading, or exchanging, or fiat currencies.

Its history dates back to the Babylonian period around BC. It was first introduced by Mesopotamian tribes where a barter system was developed so that goods could be exchanged for other goods. The system evolved over time with goods such as salt and spices becoming some of the most popular items exchanged. The very first form of foreign exchange occurred when ships would sail across the globe for the exchange of goods.

As early as the 6 th century BC, the very first gold coins were produced, and the monetary system was introduced when these coins acted as currency as they had critical characteristics such as:. The acceptance of these gold coins became widely accepted as a medium of exchange but due to their weight, they eventually became quite impractical.

The gold standard was adapted in the s and it guaranteed governments the power to redeem any given amount of paper money for the value thereof in gold. This system proved to be quite adequate until World War I when European countries suspended the gold standard system so that more money could be produced, or printed, to fund the war.

Backed by the gold standard during the early s, the foreign exchange market had already started operating during these times where countries would trade with one another as they could convert the currencies which they received into gold. There have been numerous historical events that have given shape to the Forex Market from as early as the s. Some of these events include:. Today, the Foreign Exchange Market, or the Forex Market as it is more commonly known as, is by far the largest market in the world where more than US Dollar 5 trillion is traded daily.

Although the future of the Forex market is still shrouded in uncertainty, it is ever-changing and evolving, with global occurrences, economic and political shifts, driving the market in various directions, and traders flooding to try and gain as much profit from these shifts.

The trick behind Forex trading, is to try and stay one step ahead of the curve, to try and predict what the market will do next.

There are various factors, principles, and aspects connected to Forex trading, and as easy as it may sound, there is a lot to cover and a lot to learn. Forex trading is the simultaneous purchase of a currency while selling another.

It may sound amazingly simple, but there is a lot to consider given that the trade of Forex is done for a variety of reasons and making profits from such an exchange and avoiding loss, is one of them. Forex trading does not take place on exchanges, such as with shares or commodities, but takes place between two parties, or participants, in a market which is known as over the counter, or OTC, and is regulated by a facilitator, or a Forex broker.

The Forex market is run by a rather large network of banks around the globe and it is spread across four major Forex trading centres. These centres are in different time zones and allow for Forex trading to occur 24 hours a day, 5 days a week. These major centres are based in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney.

This allows traders from around the world to partake in Forex trading despite the time zone that they are in as the markets never close and they overlap. Forex is predominantly traded by Central Banks, banks, corporations, retail traders, and numerous other participants. Central banks are participants who intervene in the Forex market while banks such as Goldman Sachs , HSBC, JP Morgan, and others trade forex and act as a form of market maker in providing liquidity to corporations, brokers, and other participants.

Banks also hedge their books should there be a chance of a currency risk in addition to trading in the Forex market. Corporations work together in a close relationship with banks in a variety of ways through which Forex trading can be done while retail traders are often ordinary people who speculate in the Forex market with the aim to earn profit from it.

Although there is a lot of reference to the Forex Market as a whole, it can be divided into three types of market, namely:. There are numerous ways in which Forex can be traded although the basic principle remains the same; one currency is sold in order to buy another. Most Forex transactions are facilitated by a Forex broker who offers traders with various trading conditions, trading tools, leverage, platforms, and other attractive offering to entice traders into using its services.

Brokers connect traders to the financial markets and to other participants in the Forex market. However, making use of a Forex broker does not mean that beginner traders can begin trading without prior knowledge or practice in trading. Currencies are always quoted in pairs with the first currency in the pair being the base currency and the second the quote currency. Forex trading involves the selling of the base currency to buy the quoted currency. The price on a Forex pair is how much one unit of the base currency is worth in that of the quote currency.

Before starting to trade, it is imperative for new traders to first familiarize themselves with what exactly drives the price movements in the markets. This will provide traders with an idea of what they need to keep an eye on to make their predictions more accurate. There are numerous factors that contribute to price movements in the Forex market and like other financial markets in the world, the Forex Market is also driven by supply and demand.

The spread is the difference between the buy and sell prices which are quoted for a Forex pair. When opening a position, traders are provided with two prices. When opening a long position, trading is done according to the buying price which is often above market price. Should the trader open a short position, they trade at the selling price which is often below the market price.

Pips are the smallest increment according to which a price can move, and it is, therefore, a measurement of such movements.

Pips are equivalent to one-digit movements in the fourth decimal place of a Forex pair. Decimal places after a pip are also referred to as fractional pips and often also pipettes. There is, however, an exception to the rule should the quote currency be listed in smaller denominations such as in the case of the Japanese Yen. Should it be the case, the second decimal place constitutes a single pip.

Forex is traded in lots which are batches of currencies which are used to standardise trades in Forex. When considering that Forex moves in small amounts, lots are predominantly large. A standard lot is normally , units of the base currency and seeing that not all traders will have , units of currency to open a trade, almost all Forex trading is leveraged.

Leverage can be described as the means of gaining exposure to a substantial amount of currency without the trader being subjected to having to pay the full value of their trade upfront. Instead, traders can put down a small deposit which is also known as margin, as collateral.

When the trader exits or closes their trade, the profit or the loss is based on the full size of their trade. However useful leverage may be, with profits being magnified, or the chance thereof, there is equal amplification of the risks of losses. Such losses may even exceed the margin and may lead to traders losing all, or more, of their initial deposit or capital.

It is therefore imperative that traders learn to manage their risks adequately and to ensure that they have risk management protocols in place to minimize the risks not only associated with leveraged trading, but with Forex trading as a whole.

Margin goes hand-in-hand with leverage and it is the term used for the initial deposit that traders have to pay when opening or entering a trade so that they can maintain a leveraged position.

The margin requirement at the beginning of a trade, which is often expressed as a percentage, will depend on both the broker which is facilitating the trade as well as the size of the trade.

The risk of price fluctuations in currency values is one that traders along with companies who conduct business in foreign countries are constantly exposed to when they buy or sell goods and services outside of their own domestic markets. There is, however, a way that traders can hedge such currency risks through the fixing the rate at which the transaction will subsequently be completed. For a hedge to be accomplished, traders can either buy or sell currencies in forward or swap markets in advance.

This locks the exchange rate in place at the point and time and protects the trader against fluctuations in currency rates.

The supply and demand for currencies are driven by numerous factors including some of the following:. When assuming that one currency in a Forex pair will strengthen, it is essentially the same as assuming that the other currency will weaken, and vice versa, as currencies are traded as pairs. Traders have the ability to profit from the difference between two interest rates in two separate and different economies through the purchase of the currency which has a higher interest rate and subsequently shorting the currency which has a lower interest rate.

Before the great advancements in internet provision, it was extremely difficult for investors to partake in currency trading. During such times, the majority of currency traders were either large multinational corporations, hedge funds, or high-net-worth individuals.

Due to the great strides in internet provision, a retail market was established which allowed individual traders to emerge into the Forex market. Today, the Forex market is one of the most easily accessible financial markets, although access to it is still granted by banks or brokers who facilitate the trade-in of numerous financial instruments.

Although there are great gains and profits in Forex trading, it is imperative for traders to understand the risks involved in trading leveraged financial instruments such as Forex. This is one of the major risks involved with Forex trading as traders tend to either misuse or abuse leverage in the hopes of maximizing their gains by using leverage.

Margin and margin requirement refer to the deposit which is put down as collateral when a trader opens a trade and by applying leverage, this requires traders to only put down a portion and allows them to open much larger positions. Both political and economic risks can play a substantial role in how traders trade within the spot Forex market. Elections can result in political instability and a certain degree of uncertainty in a country, which is why it is imperative for traders to always keep a close eye on pre-election polling so that they will not be surprised by such factors which may affect their trading.

Traders are always urged to make great use of Economic calendars as they allow traders to adequately track scheduled news events which are going to take place, allowing traders to better plan and strategize their trades. Interest rate fluctuations are an almost constant risk which is associated with Forex trading. Should an institution, or an entity, borrow funds from a lender, the lender subsequently provides the funds in exchange for a predetermined interest rate on the loan.

The interest which is charged by the lender is typically determined by the amount of risk which the lender takes. The higher risk the borrower is, the higher the interest rate on a loan, as is the same with those who have a lower risk profile who will have lower interest rates. Within different countries and counties, central banks are in charge of setting monetary policies so that economic growth and stability can be ensured.

The interest rates in foreign exchange markets which fluctuate are often what drive numerous decisions for traders. Exchange rate risk refers to the risk exposure posed by certain dynamic changes in the value of a currency. Such risks are of particular importance to companies who have operations based in other countries or companies who regularly export products and goods. Both profits and margins realized by multi-national companies are closely tied to exchange rate changes not only in the country or county where the company conducts business, but also the other countries in which business is conducted.

The Forex market is the largest financial market which sees significant amounts of trading volumes daily, this also means that it is the most volatile market in the world due to these exchanges.

Volatility risks pertain to the degree of fluctuations within the Forex market and it must be considered by all traders. Although volatility is regarded as a negative risk element that gives way to great uncertainty, it also provides its fair share of opportunity for great gains and profits to be made.

There are numerous trading strategies used by traders which not only harness the volatility in the Forex market but accommodate such conditions to provide traders with the chance to earn great profits. Forex is traded between two participants and credit risk involves the type of risk where the one party is unable to pay the other, this is mainly due defaulting, or bankruptcy.

These risks can, however, be mitigated through effective and adequate credit risk management. Traders need to adequately familiarize themselves with the rules and regulations according to which the Forex broker has to abide.

Traders need to ensure that the Forex broker that they choose is thoroughly and strictly regulated by reputable regulatory entities, and that they have the necessary compensation in place should they not be able to meet their financial obligations. These risks are associated with internal processes, systems, and people involved, and include legal risks along with fraud and security.

It is not always possible for a trader to evaluate or predict the level or amount of operational risk that they may be exposed to but it is, however, the responsibility of the trader to conduct thorough research into the operation of a broker. There are numerous Forex brokers who offer their services and it is quite a competitive field with more brokers emerging, promising lucrative trading conditions, additional services, and more to traders. It is the responsibility of traders to ensure that they do thorough research to find a reputable Forex broker.

By making use of an unregulated broker , it puts the trader and their working capital at great risk in numerous ways. Traders need to ensure that they research brokers thoroughly and choose the most suitable broker according to their trading needs and objectives. Devaluation is a monetary policy tool which is used by countries which have a fixed exchange rate, and it occurs when a country deliberately adjusts its currency downward relative to the currency of another country.

Governments of countries are able to determine devaluation as they are responsible for the issuing of currencies and it forms part of governmental activity. One of the reasons associated with devaluation involves the prevention of trade imbalances and with devaluation, there is always a chance that interest rates may rise so that inflation can be controlled more adequately.

This refers to illegitimate, scam, or fraudulent brokers who attempt to draw in unsuspecting traders in investing their capital only for the funds to be stolen without the trader having any way of gaining it back.

Although Forex brokers offer the trade in currency pairs, it is imperative for traders to understand that there are different types of Forex brokers.

By understanding this and familiarizing themselves with the types, traders can more adequately identify brokers which will cater to their trading needs and objectives. There are two main types of Forex brokers namely Dealing Desks, or DD, and No Dealing Desks, or NDD.

Dealing Desk brokers are also referred to as Market Makers while NDD brokers can further be sub-divided into the following:. Brokers such as these make their money through spreads and through the provision of liquidity to traders. Market Maker Forex Brokers offer traders with both a sell and a buy quote and subsequently, they also fill both the buy and sell orders of traders with the benefit that Market Makers are impartial to the decision of an individual trader.

Market Makers also offer their traders with fixed spreads as they control the prices at which orders are filled. These types of brokers do not pass the orders of traders through a Dealing Desk and therefore they do not take the other side of trades, but they instead link the two participants in the trade together. NDD brokers charge either a small commission on trades or put mark-ups on their spreads in order for them to make their money from facilitating trades.

STP brokers have a system route through which the orders of traders are passed to liquidity providers who are connected to the interbank market.

These brokers often have an array of liquidity providers with each provider quoting its own bid as well as ask price. ECN Brokers, unlike STP brokers, allow for the orders of traders to interact with the orders of numerous other participants in the ECN. These participants can include banks, other retail traders, hedge funds, and often even other brokers.

These participants therefore trade against one another through each offering its best bid and ask prices. Traders who make use of ECN brokers also have access to Depth of Market which displays where the buy and sell orders of other participants in the market are.

Fixed mark-up cannot be added due to the nature of ECN and therefore ECN brokers charge small commissions. In short, a Forex trading platform is software which traders use to execute trades on the Forex market. It can be seen as a vessel or a connection between the trader and other markets. Trading platforms do not only offer traders with a way to connect to markets or execute trades, but often offer advanced tools such as charting, research, options for automated trading, and more, for traders to refine their trading and enhance their trading experience.

Forex brokers often offer the software of developers or they may offer their own proprietary trading platform for traders to use. With technological innovations today, traders are no longer confined to their computers at home but are able to make use of trading software on a multitude of devices from desktops, laptops, tablets, and even smartphones.

There are numerous trading platforms available, and traders must test each out to find the one that suits their trading needs and objectives more adequately. A trading plan is an approach that a trader takes towards executing a trading system that they have developed based on a market analysis which the trader conducted along with an outlook. This also includes a risk management plan and protocols in addition to personal psychology and it is imperative for traders to follow their trading plan despite the circumstances they are met with when trading as it ensures systematic trading.

Strategies are based on predefined rules which are used to make trading decisions. Trading strategies must contain an investing and trading plan which has been considered adequately and efficiently. It provides the investing objectives along with the risk tolerance, time horizons or timelines, tax implications, and other factors while trading. Although there are numerous trading strategies that can be used when Forex trading, some of the most common strategies used include:.

Forex trading may seem overly intimidating to beginner traders who have no prior experience, knowledge, or existing skill in trading, but this should not discourage any beginner trader from trading Forex as there are numerous benefits and rewards. Forex traders are also subject to regulations that are different from other kinds of financial traders.

Because forex is traded on hour markets, there are risks of price swings even during overnight hours. Forex trades can be placed with unregulated brokers, but it is recommended that traders find a licensed broker that they can trust.

There are many resources available online to those who want to learn how forex trading works and which types of strategies will produce the best returns for them. A Forex online broker is an entity that offers clients the ability to trade currencies on the foreign exchange market through Internet-based trading platforms. Clients open an account with the broker and fund it to begin trading.

Forex brokers typically serve as market-makers in the foreign exchange market by automatically quoting bid and ask prices and placing these quotes on their online platforms for clients to accept or decline. Clients can interact with the platform, such as through charts and technical indicators, to request quotes and place trades.

There are many pros and cons associated with forex trading that must be considered before entering into any trades. The following questions and answers can provide you with some general information about forex trading. Forex, also known as foreign exchange or FX, is the process of converting one currency into another. For example, if you were to travel from the United States to Europe, you would need to convert your US dollars into Euros.

The same is true if you were to invest in a foreign company that denominated its profits or losses in a foreign currency. In order to do either of these things, you would need to buy Euros using US dollars in the foreign exchange market. The foreign exchange market is where currencies are traded. In order to trade forex, you need to have a broker. A broker is a company that provides you with access to the foreign exchange market. Once you have a broker, you can open a trading account and start trading.

Most brokers will allow you to trade with leverage, which means that you can trade with more money than you have in your account. Leverage can be a great way to increase your profits, but it can also increase your losses. However, you will need to deposit more money if you want to trade with leverage. There is no limit to how much money you can make for forex trading. However, your profits will depend on your ability to make accurate predictions about the movement of currency pairs.

As with any investment, there is risk involved in forex trading. The value of currency pairs can fluctuate rapidly, and you could lose all of your investment if you make a bad prediction. It is important to always trade with caution and to use stop-loss orders to limit your losses. A pip is the smallest unit of price movement in the foreign exchange market. For most currency pairs, a pip is equal to 0.

Margin is the amount of money that you need to deposit in order to trade with leverage. A lot is the standard unit of currency in the foreign exchange market. A standard lot is equal to , units of currency. Mini lots are also available, and they are equal to 10, units of currency. A currency pair is two different currencies that are traded against each other. The first currency is known as the base currency, and the second currency is known as the quote currency.

Jasper Lawler ・ 7 May ・ What is If you have ever wondered what a forex trader does, read this quick blog that explains what is forex trading and the job of a forex trader. A forex trader is somebody who buys and sells currencies in the global foreign exchange market. Forex traders can be full-time professional traders who earn a living trading forex or part-time investors dabbling in forex for a side-income. Picture from a CME trading floor. In the same way that a market trader selling fruit and vegetables buys the produce at a low price and sells it at a higher price, the same is done by speculators in financial markets.

The market trader takes risk by doing this because they cannot be sure to sell all their produce and cover their costs, however the risk is generally well understood and the fruit and veg is priced appropriately. The forex trader must speculate which way the currency will go next using techniques like technical analysis or fundamental analysis.

Forex trading is the way you can trade two currencies against one another in forex markets. Currency trading is much like day trading stocks but with currencies on the forex market instead of shares on the stock market!

To understand about forex trading in more detail, read our blog What is Forex? How to trade FX. Most people that trade forex work for themselves. They invest in forex using their own money so that way all the risk and reward from the results of the trading is theirs. There is almost no barrier to entry to becoming a forex trader, trading stocks, trading binary options or any other type of financial market. Any individual can choose to invest in a mutual fund with their pension money or sign up with a FX brokerage and get a forex trading account to trade forex.

However, the ease of starting should not be confused with the ease of trading itself, which requires specific forex education and experience to become proficient. Getting a job in forex is typically done by applying to large international banks that have foreign exchange trading departments. You would start as a junior trader or trading assistant and work your way up.

If your job is forex trading, you receive a salary plus a performance bonus. However, these are highly desirable jobs and competition is fierce. Forex trading is almost entirely electronic these days so there is very little need to interact with other forex traders as was once the case, where traders spent all day agreeing trades over the phone or in person on a trading floor. A foreign exchange trader spends his time reviewing the various factors that affect national economies and forex price charts and uses that information to determine if a currency is over-valued or under-valued relative to another currency.

Currencies are traded in pairs, so the trader will either buy the fist currency and sell the second currency or vice versa. Most forex trades are executed in the spot market.

All the factors put together that go into whether to make a buy or sell decision is referred to as the trading strategy. Some forex traders use price momentum to trade foreign currencies into trending markets, other use mathematical indicators to determine if a currency is overbought and due to fall or oversold and due to bounce.

This buying and selling is done through an online trading platform, which gives the trader access to currency markets which would otherwise only be available to banks and institutional investors. Forex platform software typically includes price data, charting and trade execution services all rolled into one. If you are looking for a physically active way to earn money, forex trading might not be the right choice. Traders must be able to act fast to new incoming information — be it a sudden change in exchange rates or some news that could soon influence them.

Those who most comfortable with the high degree of risk that needs to be taken on a regular basis have the best chance of success. Managing risk requires a level head. Forex traders must be comfortable with basic math but these days the online trading platformed supplied by the forex broker will do all the calculations necessary, including trade size, currency converter, margin requirements and so forth.

Forex traders typically wake up early to review any change in their existing positions in overnight markets. After having breakfast, a trader will often check the forex rates, stock indices, precious metal and other related financial markets perhaps in heat map. They will also check the latest news headlines and review the economic calendar.

How much actual buying and selling a trader does throughout the day will depend on their trading strategy. Scalpers buy and sell currency all day with quick in and out trades while day traders will typically open a trade near the start of the day and close it before the end of the trading session. New traders will often get some help with their spot forex analysis through the use of a forex signal services or with a forex trading course or forex mentor. If you like the sound of being a forex trader, FlowBank offers a demo trading account with 1M Swiss francs or your preferred currency in pretend money to practice trading with in a risk-free environment.

CFDs are complex instruments and are not suitable for everyone as they can rapidly trigger losses that exceed your deposits. You should consider whether you understand how CFDs work. Please see our Risk Disclosure Notice so you can fully understand the risks involved and whether you can afford to take the risk. This website is owned and operated by FlowBank S. A, a company regulated by the Swiss Financial Market Supervisory Authority FINMA and a member of esisuisse.

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What is being a forex trader? What is Forex trading? How to trade FX How to become a forex trader Most people that trade forex work for themselves. Bank of America Trading Floor in New York There is almost no barrier to entry to becoming a forex trader, trading stocks, trading binary options or any other type of financial market.

What a forex trader actually does Forex trading is almost entirely electronic these days so there is very little need to interact with other forex traders as was once the case, where traders spent all day agreeing trades over the phone or in person on a trading floor.

Skills needed to be a forex trader Traders must be able to act fast to new incoming information — be it a sudden change in exchange rates or some news that could soon influence them. How to practice forex trading If you like the sound of being a forex trader, FlowBank offers a demo trading account with 1M Swiss francs or your preferred currency in pretend money to practice trading with in a risk-free environment.

Jasper Lawler. Subscribe to our publications Every day brings a whole host of headlines about the financial markets. Get daily investment insights and analysis from our financial experts. Privacy Policy Terms Legal System Requirements.

The Bottom Line. Stay away from scalping and choose to trade long term. How much actual buying and selling a trader does throughout the day will depend on their trading strategy. What is Forex Trading and how does it work? And you can trade with a large amount of money.

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