Guide to Forex (Foreign Exchange) Trading
Forex Trading – or foreign exchange trading – is the act of trading currencies between countries to hopefully benefit on your own behalf and gain money with correct timing at a relatively low risk. As the price of currency is constantly changing, appropriately timed currency trades can, indeed, turn a profit. This can be done by researching and trading on your own, or a broker can be hired to do the trading for you. Forex trading is becoming a more popular style of investing on a personal level, and is the largest worldwide style of investing by far.
Let’s take a look at some benefits or pros of forex trading, first:
- Forex trading is a 24 hour market. Unlike regular stocks and bonds which are only open during US business hours, foreign exchange is open worldwide, so it needs to cover all time zones. This is great for someone who doesn’t want to devote their day hours to investing.
- Forex trading also has margins and leverage working for you. This can allow you to invest on a larger scale than you have physical cash for. This can carry risks, however so use at your own caution!
- With the nature of forex trading, and with it being international, it is much harder to influence this market. Unlike your stocks being thrown off because a company goes under, it takes a lot for large changes in currency.
- Finally, you decide how long you want your trades to last. If you want to trade immediately, go for it! If you want to hold on for a while to see how things pan out, the decision is yours.
There are also cons to forex trading, here are a few:
- While forex trading is known to be safer than other methods of investing, it is still possible to lose some or all of your input, if not traded correctly and at the right time.
- There are always scams to look out for. If you choose to use a broker, it is important to make sure he or she is legit and trustworthy. If you decide to go it alone, look out for online scams and always do your research before investing your money.
- Markets can be very unpredictable, even with proper research.
So, what do you need to do to be a successful forex trader? First, you need to know this is not something to invest your bill paying income on. All your daily, monthly, and yearly bills should be taken care of, as well as some emergency money set aside. Investing should always be done with disposable money, as there is always a chance of losing it. Secondly, you should have a separate account set up for investments. Most banks carry special accounts to help you make the most of your money, while keeping it separate from your regular funds.
Most obviously, you need to verse yourself in exchange rates. Though they change daily, it is imperative to study and learn your way around these rates. All information can be found online or at your financial institution. Knowledge of interest rates would absolutely be helpful with currency trading, as you are charged interest with each sell, and can gain interest on each buy. Since trading holds a buy and a sell at once, it can be confusing to understand the logistics. It’s always best to decide which styles work for you. Do you want to get instant feedback? Day trades may be the answer for you. Do you want to take your time, study, and put space between trades? That can be an option, too! Carry trading is another style to look at. This takes interest rates into account, rather than just looking at exchange rates, and can be another way to make money. You can also look at investing in Exchange-Traded Funds.
Finally, you should decide which is better, using a broker or doing the trades on your own. If you are willing to put in the hours and research, you can save commission fees by doing the trades through an online service or through a bank. This appeals to those who want to have maximum control, and want to make as much money as possible. If you would like a little help with the trades, and don’t mind paying fees for someone to help you make the right decisions, a broker can be a very helpful tool. But as stated above, make sure to do your research either way, no one wants to lose their money to a scam or untruthful broker!