Forex or FX (Foreign Exchange) is the trading of one currency for another. For example, one person can exchange the U.S. dollar for the euro. Foreign exchange transactions can take place on the foreign exchange market. There is no centralized location, rather the forex market is an electronic network of banks, brokers, some institutions, and individual traders (who trades mostly through brokers or banks).
How to Become a Forex Currency Trader
Firstly it should be better to know that there are three ways to trade foreign currency exchange rates:
On an exchange regulated by
1.the Commodity Futures Trading Commission 2.the U.S. Securities and Exchange Commission
In the off-market exchange (also called over-the-counter trades)
Once you know where you would want to trade, you have to need to open a brokerage account.
Most large U.S. stockbrokers offer forex trading as well. If you currently have a brokerage account, it’s likely you can begin forex trading through your stockbroker. In most cases, you just need to simply fill out a short online currency-trading application. If you’re opening a new forex account, you’ll begin by making a small deposit.
Some brokers will allow you to open an account with as little as 50 of your base currency, though they may recommend you deposit more in order to have more flexibility and risk management with trades.
Once you’ve opened your account, you begin trading by selecting the currencies you want to trade. Currencies on the forex always come in pairs. As the value of one of the currency pairs rises, the other falls. Most beginning traders should trade only the most-widely traded currencies, such as the U.S. dollar, the British pound (GBP), or the euro because they tend to be the most liquid and have the smallest spreads. The fx시티 is the charge that the trading specialist, effectively a middleman, charges both the buyer and seller for managing the trade.
What a Typical Currency Trade Might Look Like
Let’s look at an example of a forex currency trade. Let’s say the British pound (GBP) is quoted at 1.1512. This means that you could buy 1,000 British pounds for $1,150 U.S. dollars. If the asking price is 1.1512, we can see that the spread is relatively low—it’s the difference between the bid (1.1511) and the ask (1.1512).
Say you buy 10,000 GBP at 1.1511. If the pound rises to a selling price of 1.1622, you may then sell your position. Your profit equals 10,000 times the difference between the price you bought it at (1.1512) and the selling price (1.1662). So your profit would be 152, or $152 United States dollars. You have made your first profitable currency trade.
Risks of Forex Currency Trading
So you can see from the example trade discussed above, currency trades are highly leveraged, sometimes by as much as 1,000 to 1. Beginning currency traders may be attracted to the possibility of making large trades from a relatively small account, but this also means that even a small account can lose a lot of money. Your losses aren’t limited to your deposit.
Another risk to consider is that the quoting conventions are not uniform. Many are quoted against the U.S. dollar, but there’s no regulation or standard for quoting conventions in the forex market.
And don’t forget about fraud. Whether you are selecting to trade on regulated exchange or in the off-market exchange, beware of any fraud scheme who says you can get rich quickly and easily.