A forex trader is an individual who buys, sells or exchanges currencies in the forex market. Forex traders also go by the name “currency traders” and “foreign exchange traders”. Forex traders can be experts working for a financial company or individual traders who tend to perform trading for their own benefit, be it a hobby or living.
In simple words, forex trading is a streamlined process of buying and selling currencies. The forex market has an average turnover of more than $6 trillion, making it one of the biggest financial markets in the world. Comparing this value to the stock market’s value, it does even come near to it. What does it mean for a trader? Well, if you take a look at forex trading more precisely, you will discover that it has some great opportunities not available in other investment markets.
Meaning Of Forex Trading
Forex traders use exchange rates in order to take advantage of trading forex. In forex trading, traders predict the currency fluctuation in relation to each other and buy and sell currencies accordingly. Foreign currencies’ value change against one another every day. This makes way for traders to make profits from these movements just like they make profits from anything whose value changes. The best benefit of trading in the forex market is that it is open for traders 24 hours a day, thereby making it one of the most liquid markets in the entire world.
How Does Forex Trading Work?
Forex trading is entirely electrical in nature. Market participants can purchase and sell the forex pairs worldwide 24*5. The participants of the forex market communicate with one another remotely through the internet. Whenever a trader places an order (to buy or sell currency) in the forex market, forex brokers assist them by offering margin. Consequently, the trader can open new trading positions with much more capital than what he actually possesses, with the intention to make profits from the favorable market changes.
What Are The Risks Associated With Forex Trading?
- High Leverage
Forex trading is highly leveraged, which can go up to 1:1000 or even higher in many countries. It means that traders can obtain currencies much more than they could by investing their smaller sum of capital. However, the situation sometimes backfires, leading to huge losses.
- Loss Of Capital
Forex beginners might get allured by the prospect of making big profits with a tiny capital; however, it also suggests that they could lose all their capital and additionally have to pay the leveraged loan plus the interest on it.
- Frauds
Thirdly, always remember the potential frauds and scams that can occur in the forex market. The list of unregulated brokers is long, and it is easier for forex beginners to fall prey to them. Thus, be cautious of any broker who claims to make you rich instantly, whether it is a regulated or unregulated broker.
- No Law For Quotation Procedures
Another risk that many forex traders face while trading forex is a lack of consistency when quoting conversions. This is so because there are no standard procedures in the forex market for quotations. Consequently, you need to understand the importance of the currency quotes you are trading, or else you will end up losing your money unintentionally.
Before You Begin, Practice Forex As Much As You Can
Opening a demo account is the best way to start practicing forex trading if you are a forex beginner. Many brokers provide the facility of the forex demo account free of cost to let forex beginners practice trading without using real money. Generally, demo accounts are funded with virtual funds but have a trading environment similar to that of the real trading account. The traders can test out as many trading strategies as they want before actually opening a real trading account with the broker. A demo account also enables traders to check the brokers’ services and whether they match their trading style and needs or not.
Hence, with the help of a demo account, novice traders can easily learn how to do forex trading without risking their real money. When you think you are able to execute profitable trades on the demo account, you can then open a real trading account.
