May 22, 2019
Although the Forex Market has won big popularity in the last few years, there are some basic notions that all traders must know.
1. What is the Forex Market?
As we explained here, Forex is one of the largest markets in the world and refers to the market where one currency is traded for another. In short terms, the Forex Market involves the buying and selling of currencies. These are traded in pairs, meaning, you’re buying one currency and selling another.
2. Who is a Forex Trader?
In line with the above, a Forex Trader is the person who buys and sells currencies on the foreign exchange. Currency traders could be professionals working for a financial firm or group of clients, but they also include amateur traders who trade for their own financial gain, either as a hobby or to make a living.
3. Do I need a minimum amount of money to start trading in Forex?
Depending on the broker, you can start with a minimum of just $1. In other cases, the amount varies from $100 to $10,000. However, the recommendation is to start with more money. Starting with as little as $1 doesn’t allow you the freedom to experiment in the market as you are learning and building on your knowledge.
4. Can I lose more than I invest? How can I reduce the risk of losing money?
Normally, you cannot because the broker will not allow you to lose over the offered funds on your account. When the resulting account balance gets close to zero, the broker will close your losing position. However, you can minimize the risk by putting in stop-loss or limiting orders on your short. A stop loss order instructs your broker to shut out your position if the currency you are shorting rises to an exact worth, protecting you from more loss.
On the other hand, when you educate yourself and manage your risk by being fiscally responsible, it is possible to make huge profits.
5. Do I need a lot of time to trade?
It all depends on your expectations and your goals. You can trade as little as 15 minutes per day and keep your day job. When you place your trade, you also set a take profit point. If the market hits your take profit, the money is deposited into your account
6. What are the essential tools for trading?
You can trade from desktop or mobile devices, so the minimum requirement is to have a good connection to the internet. Depending on the broker you are trading with, there are also specific software and analysis tools that help you to trade with confidence; like Forex Trendy – Forex Trend Scanner and Trading Oracle.
7. What is the meaning of “go long” in Forex?
This explanation will be easier with an example. When you trade, you do it in pairs, like this: USD/EUR = 100.00. The USD is the base currency and the EUR is the quote currency. This quote shows a rate of $1 US Dollar being equal to 100 EUR. When you place a long trade on this currency pair, you are going long on the USD Dollar and you’ll simultaneously go short on the EUR, which means you’re effectively selling the Euro, just like when you short a stock by selling shares.
8. And what does it mean to “go short”?
On the other hand, you “go short” by shorting equity or currency when you believe it will fall in value. With a stock, you are borrowing shares that don’t belong to you and agree to pay for those shares at any time in the future.
9. What is the difference between Forex and Commodities?
While a commodity market is a market that trades in manufactured goods such as coffee and cocoa; Forex is a global market that trades in currencies, such as dollars, euros or yens.
10. Which is the difference between Forex and Stock Market?
The forex market is so large – one of the largest in the world – and no one controls it. Instead, large corporations and banks control the stock market. This is the main difference.
Forex is one of the largest markets in the world.
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