Have you ever wanted to buy and resell something in the hopes of making a profit? If you change that ‘something’ to ‘currencies’, then you’re in the world of forex trading.
Forex trading is what you participate in in the forex market. Now, the forex market, also known as the forex exchange and FX for short, is the world’s largest financial market for exchanging national currencies such as the Dollar, Pound, Rand, Chen, and the list goes on.
Trying to navigate the waters of the forex market can be especially daunting when you’re a new trader. However, with a bit of research and an understanding of currencies, you should have a good amount of information at your disposal to start trading.
This article aims to shed some light on these topics for you so that you can make informed choices:
A play-by-play of forex trading
Right, so you are new to trading; you have been asking yourself what is forex and you don’t know where to start.
The forex market is the largest financial exchange market in the world. It is open Monday through Friday, 24 hours a day. It opens when the sun rises in Australia and then closes for the end of the day in the United States, and then repeats.
It’s quite a challenging form of trading; you need to know a lot and it is heavily competitive. In fact, the forex market once scored a record total of 7.5 trillion dollars of trading a day, which should give you an idea of just how busy this market is.
You know those movies where people are sitting in rows and rows and making trades with people over the phone or when they’re in that big hall shouting at their screens and someone rings a bell to end and start the day? That’s the forex market. The interesting thing about this market is that you don’t really trade on the forex itself.
As a new trader, you will trade through something known as the interbank currency, where you trade on online platforms and through brokers. Brokers are going to push you to place as big an investment as possible as they receive commission on what they bring into the company they’re working for, so be vigilant of this.
The impact of currencies
The value at which a currency lies is of huge importance to you if you want to go into forex trading. You need to know exactly what value a currency has in order to trade it properly.
Now, the tricky part about this is that currencies are ever-fluctuating. If many are being sold on the forex market, this could give people the sign that there is little faith in the currency and, therefore, it drops. However, it’s not just the forex market that impacts the value of currencies; there are many socio-political, economic and environmental factors that contribute to this.
For example, if one country has a natural disaster such as a tsunami or earthquake, this will leave that country’s currency weak. You can’t foresee a natural disaster, so if you were holding a lot of that currency, then you either hold on and wait or you sell it for peanuts.
The same goes for economics; if there is a big scandal with a large corporation, this could impact the value of the country’s currency. Of course, it will mainly impact the company’s stock if they’re a public company, but if the establishment is big enough, it can have a huge impact on the nation’s currency.
The same goes for presidential elections or governmental trades and deals – all these factors influence the value of a currency, which is why it is crucial for you to stay updated with as much global news as possible.
Avoid rookie mistakes
If you’re a new trader, you’re going to want to avoid some of the typical rookie mistakes. The first would be to never invest too largely in your first month. Take some time to feel the forex market out; don’t just jump in head first, convinced that you know what is going to happen because the thing is, you could be in for a real shocker.
Secondly, don’t let yourself be pushed around by brokers or online platforms. They aim to get you to trade as high an investment as possible; they will sweet-talk you, offer you supposedly great deals and maybe even over-sell the value of the currency – don’t fall for it.
Do your own research, know what you’re talking about and don’t let others’ opinions influence you. Lastly, never trade more than what you have in disposable income. Although the forex market is not a high-risk option, you still need to keep your wits about you and realise that it’s still trading.
In conclusion, the forex trading market is the largest financial market in the world, it trades between national currencies and is open 24/7, five days a week.
It’s an option for you to get involved with this kind of trading, but only if you’ve done the necessary research and know what you’re doing. Remember to stick to your budget and never fall for anyone trying to convince you of something.
Well, there you have it. Hopefully, these points have demystified the world of forex trading for you.
Also read:
4 key concepts every South African forex investor should know
Picture: Supplied
