This article is about entering the foreign exchange market and how you should go about doing so.
Trading in the foreign exchange market can be an exciting and thrilling method to make a lot of money. You need to consider the following points to understand the size of this financial market. The securities market experiences trading transactions to the value of around $20 billion on a daily basis. The foreign exchange market experiences trade transactions to the value of about $5 trillion on a daily basis.
To start trading in this market, you need to understand what all the terms mean.
The base currency can be described as the currency you use to purchase another currency. The currency you intend purchasing is called the quote or counter currency.
The forex rate is the amount you are able to get if you sold one currency for another. For example, if you wanted to purchase Euros and you are holding US dollars. If the exchange rate at the time of purchase was EUR/USD=1.3800, it indicates that it will cost you $1.38 to buy one euro.
If your intention is to purchase the base currency and dispose of the counter currency, you would enter a long position. If you wanted to buy the counter currency and dispose of the base currency, you would be entering a short position.
The bid price is the price at which your broker is willing to purchase your base currency and exchange the quote currency amount for. The ask price is the price at which your broker is willing to sell the base currency and exchange the counter currency for.
The spread is the variance between the bid and the ask prices.
Foreign Exchange Market Currency Pairs
When you first enter the trading market, you have to decide which currency pairs you intend trading. To make an effective decision, you need to:
- Be aware of the economic events in the countries related to the currency pairs
- Take note of the country’s trading position
- Be able to effectively forecast economic shifts
- Consider the global political climate, particularly related to the country of your currency pair
Before you can start live trading, you need to find a forex broker. Before you make a final decision on a suitable forex broker, you need to consider a few factors.
- Ensure the broker is registered with the regulatory body in the country where it is based
- Find a broker who has relevant experience in this trading market
- Find a broker who has an impeccable reputation with no black stains on his name
- Determine the size of the broker’s client base. It is advantageous to register with a broker with a large client base
- Check the fees related to your transactions
- Check all the rules and regulations related to trading with the broker
- Find out the types of accounts on offer and what the requirements are as far as the initial capital amount
As you can see, there are quite a few factors you have to consider before you can enter this trading market. You should move along the road step by step and not rush directly into live trading. This impulsive action could cost you a lot of money.
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