Many newcomers go into the forex market, also known as the foreign exchange market or foreign currency market, with high hopes full of false expectations. Yes, the forex market can go your way and you can come out a winner more times than not, but that is not always the case. The road to success in forex is often a bumpy one, so it’s important to understand from the start that there will be ups and downs. That’s the nature of forex, so get used to it from the beginning so you don’t become quickly depressed and leave the game! Here are some basics that should get you off on the right track.
The interesting thing about forex is that there is no central marketplace. You can’t really compare it to the NYSE, because it can be done anytime, anywhere. The main trading centers are in New York, London, Zurich, Tokyo, Hong Kong, Frankfurt, Paris, Sydney and Singapore. Depending on the time zone, you can catch these markets five days a week, 24-hours a day. Traders, governments, investors, businesses and banks all go to the same place to speculate or trade currencies. The major banks will quote prices for each currency, and then they are bought and sold as currency pairs.
The most important aspect of preparing to trade forex is to come to the market educated. Read everything you can and spend enough time learning that you know the tricks of the trade and how the market works. Find some online gurus who aren’t afraid to reveal their secrets to success and sign up for their blogs. Then find a broker who will give you experience by setting up a practice account. Don’t fund your account and start going live until you understand the process and the potential pitfalls.
Besides the luxury of being able to set up shop with a laptop and trade anywhere that is convenient for you, there are other great benefits that make forex an ideal market. For starters, it’s the largest market, with daily trades landing between $3 to $4 trillion per day. This type of liquidity makes it easy to enter and leave positions quickly. Unlike the stock market, it’s easy to get started with a minimum amount of money. Some retail brokers will open up an account with as little as $250, although beginning with at least $500 might be more realistic. Besides that, transaction fees with forex are less than with other commodities.
The forex broker will publish an exchange rate, which you can compare to see how much you can trade for a different currency. The first currency you see listed is the base currency. The counter currency is listed second in the pair. They will be listed with a bid price and an asking price, which is the price you’ll pay when buying. The difference between those two prices is the spread.
In short, do your homework so you’ll know what you’re getting into and good luck!