What to know before starting forex trading. Once you are interested in the subject of investing, it is possible that you are recommended to try learn Forex or Foreign Exchange. By now, you might even know some people around you that make Forex trading as their career. Forex trading itself refers to the purchasing and selling of certain currency pairs with the goal to generate profits.
Things to Know before You Start Trading Forex
If you are interested to invest on foreign exchange, there are actually a few things that you better know before you start trading. It will be an essential part of your journey to learn Forex and achieve the primary objective: to make profit! So, before you start trading Forex, here are a few significant things you have to know.
#1 You Don’t Have Own Physical Currencies
If you think that Forex trading is like going to a conventional moneychanger to purchase currencies, you need to change your mind. When it comes to Forex trading, you will never actually own the certain physical currencies that you buy and sell. Everything happens in Forex trading is recorded electronically. You never in reality have the physical currencies.
#2 Understand the Bid-Ask Spread
This is another essential element of Forex trading that you need to know: the bid-ask spread. As you enter the Forex market, you will soon realize how competitive Foreign Exchange spreads are contrasted to the traditional money changers spreads. While most traditional money changers make a spread around $0.01 to $0.02 for each dollar traded, foreign exchange spread can be as small as $0.00006.
#3 You Get Profit from Volatility
If you just begin to trade, you might be confused by the dissimilarity of trading and investing on foreign exchange. When you invest in general, you are purchasing into certain asset which you believe will maintain its value over the years. When you are trading Forex, your goal is to earn profits from the exchange price fluctuation in short-term only.
#4 Be Familiar with Currency Pairs You Trade
Before you start trading Forex, there is no doubt that you need to be highly familiar with currency pairs. There are various currency pairs which you can trade on the market. Some popular currency pairs include USD/JPY, EUR/GBP and EUR/USD. It is also crucial to keep in mind that different pairs have different behavior types. One strategy might not be suitable for another.
#5 You Are Utilizing Leverage
Different to the popular beliefs about Forex trading, this activity is actually not really risky. Most popular currency pairs on the market rarely fluctuate 2 to 3 percent over a short period of time. Instead, there is leverage which makes this activity riskier. It’s common to face leverage of around 50:1 which means with $1,000, you can occupy a place of up to $50,000.
#6 You Are Better Trying a Demo Account First
Before you get started, it is possible for you to try a demo account first. You might think that making profit is the only thing to consider, but actually there are other things that you need to focus on in order to gain the profits. That’s why for a new Forex trader, it is extremely recommended to try out strategies in a demo account first.
Those are several important things that you better know before starting to trade Forex. It is also highly recommended to get a good Forex broker that offers you opportunity to learn Forex as you trade on their trading platform. It will be good for you to learn deeper about Forex with professional and experienced consultants offered by the broker. Hope you enjoy it!