If the velocity of your trades necessitates low fees, know that you will be sacrificing some educational resources in favor of a streamlined system designed for the pros. You’ll be jumping in with both feet. On the other hand, a low minimum account typically comes with the educational resources and communication channels required by new forex investors. The identity of different brokerages rest on the type of investors they aim to appeal to. Choose accordingly.
Traders are people who work on the Forex market, trying to ascertain the direction in which the value of a currency will go and make a trade for the purchase or sale of that currency. As such, by buying a currency cheaper and selling it for more, traders earn money on the Forex market. Traders make their decisions based on the analysis of all factors that can affect prices; allowing them to work out precisely in which direction prices are moving. You can make a profit on the Forex market when the value of a currency drops as well as when it increases. Furthermore, traders can make trades on the Forex market from anywhere in the world; from London to Timbuktu.
With this amount of capital, and being able to risk $50, the income potential moves up and traders can potentially make $50 to $150 per day, or more, depending on their forex strategy. Leverage allows forex traders to take a position worth $62,000, while only having a $5,000 account. As long as risk is controlled on each trade, leverage is a significant advantage in forex trading.
Some commonly traded forex pairs (known as ‘major’ pairs) are EUR/USD, USD/JPY and EUR/GBP, but it is also possible to trade many minor currencies (also known as ‘exotics’) such as the Mexican peso (MXN), the Polish zloty (PLN) or the Norwegian krone (NOK). As these currencies are not so frequently traded the market is less liquid and so the trading spread may be wider.
Each currency pair can be thought of a single unit consisting of a “base currency” (the first currency) and a “counter (or quoted) currency” (the second currency) which can be bought or sold. It shows how much of the counter currency is needed to buy one unit of the base currency. So, in the EUR/USD currency pair EUR is the base currency and USD is the counter currency. If you expect the price of Euro to increase against the price of the U.S. dollar you can buy the EUR/USD currency pair. While buying a currency pair (going long) the base currency (EUR) is being bought, whereas the counter currency (USD) is being sold. Thus, you buy the EUR/USD currency pair at a lower price to later sell it at a higher price and as a result make a profit. If you expect the opposite situation, you can sell the currency pair (go short), meaning sell Euro and buy the U.S. dollar.
Despite being able to trade 24 hours a day, 5 days a week, you shouldn’t (Forex trading is not quite 24.7). You should only trade a forex pair when it’s active, and when you’ve got enough volume. Trading forex at weekends will see small volume. Take GBP/USD for example, there are specific hours where you have enough volatility to create profits that are likely to negate the bid price spread and commission costs.
There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market and the futures market. The forex trading in the spot market always has been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading and numerous forex brokers, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.
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