Forex Trading: A guide for Beginners

Forex trading also known as FX trading has become one of the greatest investment opportunities in the world. Forex is a short form of foreign exchange. Foreign exchange involves various items however, for this case we will focus on the exchange of various currencies. The idea of forex can be traced back in 1876 when the idea of the gold exchange was introduced. At that time, the main purpose was to control paper currency across the world by pegging it to physical gold. Every currency was therefore expected to back its paper currency by a certain amount of physical gold.

However, the idea of gold exchange came to a halt in the 1940’s when some of the major European countries lacked enough gold to back their paper currency which was needed to finance military activities. Consequently, the U.S dollar was the only currency that was pegged to physical gold until 1971 when the United States government declared that the dollar could no longer be exchanged for gold. That is the point every country was allowed to float its currency against another. Nonetheless, it was not until 1990’s when foreign currency began to be exchanged electronically across the world. Trade 111

trading has therefore undergone various changes mainly affected by technology. The internet has made it possible for the trade to be conducted anywhere in the world by anyone interested. Forex trading is largely conducted in locations such London, New York, Hong Kong, Sydney, Paris, Japan and several other major capital cities around the world.

Why should you engage in forex trading?

people do not understand how the forex market can be used as an investment opportunity. This is probably because of lack of clear information to those who would want to engage in the trade. The first reason as to why you should engage in forex trading is to make money. How do you do that? Forex trading basically involves speculation of currency values. For instance, if you feel that the Euro is soon going to strengthen against the dollar, then you can purchase the EURUSD pair and when that comes to pass you will definitely make some profit depending on how much you had invested.

What to consider before engaging in forex trading

There are various things you should consider before starting out on forex trading

Forex broker

A forex broker is the one who facilitates actual trading in the forex market. It is therefore important to ensure that you get a reliable forex broker who will assist you in making the right decisions.

Trading tools

There are various trading tools used in forex trading. A trading tool plays a big role in determining whether you will succeed or fail in the forex market.

Understanding of the market

This is also an important factor to consider. As a beginner, it is important to get an understanding of how the forex market operates before you start trading. You can do that by taking forex trading courses to learn the basics.

Two major ways of approaching currency trading

The first one is referred to as “active traders” opportunity which best suits brokers since they earn commission and profits according to how active companies are on their platforms. The other approach is known as leveraged trading. This is where any person can open a trading account and deposit a certain amount of money. They are then allowed to trade in the stock market even with amounts exceeding that which is in their trading accounts.

Bottom Line

If you are interested in the stock market and you have insufficient funds, swing trading or day trading can be the best option. Besides, for those who have large sums of money then a carry trade will be an appropriate choice.