Things You Need to Know Before You Jump on the Bandwagon of Trading in the Foreign Exchange Market
With Brexit and the U.S. presidential elections hobnobbing the headlines, the currencies have been on a rollercoaster ride. There have been record-breaking highs and lows. The forex market is always in the news for some reason because it’s volatile.
So, what does all this mean? And more importantly, what what do you really need to know before you start trading in the forex market?
The very first thing that you need to know is that trading in the forex market comes with its share of high risk. There is always a possibility of you losing money. So, you need to remember that any investment in the foreign exchange should include only risk capital. You should never trade with money that you can’t risk losing.
So, what exactly is Forex?
If you’ve been interested in the forex market for a while, you may have noticed that the value of each currency fluctuates every single day. Many people don’t realise that there is a separate Foreign Exchange (Forex) market where they can potentially profit from the movement of all these currencies.
One of the 30 richest people in the world, George Soros is a great example of how he profited from the forex market. Back in 1992, due to his short sale of US$10 billion worth of pounds, he made a profit of $1 billion! This is the reason why he’s also known as The Man Who Broke the Bank of England.
But you should know that trading in currency involves a huge amount of risk and there are people who have lost a substantial part of their investment. With the improvement in technology, today the forex market is much more accessible due to the availability of online trading. In fact, it has seen an unprecedented growth.
But one of the best things about trading in the foreign exchange market is that you don’t have to be a big money manager. Investors and traders like you can also trade in this market.
The Forex Market in a Nutshell
Did you know that the forex market is the largest financial market in the world.
Its daily trading volume averages at more than $3.2 trillion! When you compare that to the New York Stock Exchange, it averages only $55 million everyday.
In fact, if you were to add all the world’s equity and futures markets, their combined trading volume equals only a quarter of the forex market. So, you can imagine the enormity of trading in the forex market!
So, why is size important? Since there are tons of buyers and sellers, the transaction prices are purposely kept on a lower side. If you’ve been wondering how trading in the forex market is beneficial and different from trading stocks, mentioned below are a few reasons why you may want to switch to trading in the forex market.
There are many firms that don’t charge any commission. All you need to pay is the Bid and Ask prices.
24 Hour Trading
Unlike trading in the stock market, which stops during the day, you can trade 24 hours in the forex market. So, basically you can set your own terms and conditions and trade whenever you want.
Trading on Leverage
You’ll be able to trade on leverage. But you need to remember that this can magnify potential gains as well as losses.
Focus on a Few
As compared to the 5,000 odd stocks in the stock market, you can actually focus on a few currencies to trade in. If you’d like you can concentrate only on the Eight Majors.
Very Little Investment
You don’t need a lot of money to get started in the forex market. If you’re a beginner, it’s actually recommended that you start off with a smaller amount. And as you learn the ropes of trading in the forex market, you can adjust your investments accordingly.
It cannot be stressed enough that the forex market carries a high level of risk. So, you need to be very careful every step of the way.