You’ve heard of how you can make money online trading forex, and you are wondering what is the meaning of forex trading. You’ve heard tales of people making thousands or even millions and you are wondering whether it’s really true. Wonder no more! We’ll explain what forex trading is and whether you can really make money on it.
It’s basic knowledge that different countries have different currencies. Also, countries buy goods and services from each other. As such, a country that wants to buy anything from another country must have a currency that the sellers in the other country would accept. If they do not have, they have to exchange their currency with the currency they are seeking. That presents situations, whereby one currency usually has more demand than the other.
The difference in demand for currencies presents a situation where the value of the currencies fluctuates frequently. The fluctuations provide room for currency trade, which is better known as forex trade. Usually, central banks, hedge funds, and other corporations with massive liquidity exchange the currencies depending on which currency has more demand.
There are many questions that we get about foreign exchange trading. what is pips in forex trading? what is arbitrage trading in forex? what is the best time frame to trade forex? what is money management in forex trading? We are going to try and answer these and a couple more questions about forex trading.
The internet came and revolutionized forex trade. It made it possible for an individual to trade on the forex market. The forex market is a global online platform where the large banks and corporations as well as individuals, exchange currencies. If you are able to buy a certain currency on the market, wait for its value to rise, and then you sell it, you are going to make a profit. Keep in mind that the currency could lose value. As it loses value, you are losing money.
Now that you have a general idea of what forex trading is, let’s explore how you actually trade forex as an individual.
How Does Forex Trading Work?
We’ll explore the various dynamics of forex trade, and how individual traders go about it. There are some basic aspects of forex trading. These are things you need to know and have before you start trading on the global forex market.
As we’ve mentioned above, the global forex market features large banks, and corporations, which have massive liquidity. As such, individual traders are unable to take part directly, since many of them would not have enough money to stake. That’s where forex brokers come in. Their role is to consolidate similar trades and execute them as one large trade on the forex market.
Before you start trading, you need to choose an appropriate forex broker. Not all forex brokers are legit, and some have features that would not give you the best chance of making a profit. Here are some essential considerations that you should make before settling for any broker.
- Check whether the broker is regulated and whether the purported regulatory authority really exists and has a mandate in that particular jurisdiction.
- Check the trading terms offered by the broker. By trading terms, we mean minimum deposits, minimum stakes, spread, number of currencies available, etc. These issues determine whether it is possible for you to trade with that particular broker. What are pips in forex trading? It is a measure of the spreads/ commission by the broker. What is leverage in forex trading? Leverage is a measure of how much profit you can make when you take a certain position.
- Check whether you can transact with that particular broker. You’ll have to deposit your trading funds on your trading account. You also need to be able to receive your funds when you make a withdrawal. There must be a way for you to deposit and receive your funds, or you’ll otherwise not be able to trade with that broker.
Once you have an appropriate forex broker, you are ready to get started. The question now is; how do you go about forex trading?
Forex Trading Strategies.
You need certain knowledge and skills for you to be able to trade profitably. Forex trading requires a strategy. Forex trading skills and strategies things that you learn and develop over a period of practice. There are certain already defined methods of approaching the trade though. Take a look at the pointers below.
- You need to be able to read and analyze market charts. The movements of the global forex market are depicted in charts and graphs on your broker’s platform. A part of knowing how to trade is being able to read and analyze the markets. Being able to read the market helps you understand how the currencies are moving and puts you in a better position to make predictions.
- You need to be able to manage your trading funds. You must have funds to stake on the forex market. If you are not good at managing funds and risks, you might lose all your funds in a single trade and have problems
- You also need to be able to take a position on the market, observe the progress of your trade, and react accordingly depending on how the markets are behaving. Trading on the forex markets involves mitigating risks, and you have to be able to do so effectively.
Every forex trader approaches the forex markets from a different angle. As mentioned earlier, there is no forex trading blueprint, and there is no one trader who wins all their traders. It is a game of numbers, where you have to ensure you win more a bigger percentage of your trades. That’s the only way you can be able to make a profit on the forex market.
Lastly, let’s answer one of the most pertinent questions that people usually ask. Can you make money trading forex?
As mentioned above, you need to make sure you are winning a better percentage of your positions. If you are, you’ll certainly be counting profits. How much money you can make is dependent on how much trading funds you have, and how much you are staking; that is if you are winning most of your positions. Traders who make thousands every month have trading balances to the tune of hundreds of thousands on their trading accounts.