What is Forex trading?

What is Forex trading, really?

For starters, it's an income opportunity accessible by anyone with a computer and internet access.

The trading part is straightforward enough, as it involves exchanging one asset for another.

When it comes to Forex, this means trading currencies and related financial assets.

Governments, businesses and retail investors all participate in this market, which is open literally 24 hours a day.

Because of this robust participation and availability, the Forex market is the world's most liquid and accessible market.

Forex Live Account

What does Forex online trading look like in action?

Forex online trading in action

The basics are pretty simple.

To turn a profit, a trader buys assets he believes will rise in value and sells ones he (or she) thinks will decline.

For example, if a euro is worth 1.1525 U.S. dollars and you think it will appreciate in the next 24 hours, you could place a Buy order.

Should the euro rise to 1.1550 against the greenback, you could close out this position for a 25-pip profit.

EUR/USD

The amount generated by such a Forex trade would depend on the initial amount invested.

Breaking the process down into its component steps, reveals a more complex situation.

Let's start from the beginning:

...first, research available brokers, accounts and trading strategies…

...then create and fund an account.

Now you are ready to begin Forex trading online.

Yes, it's that simple to start.

But regardless of which currency pair you want to trade and any particular strategy you want to use - you must prepare.

Forex traders frequently follow trends and this might make it more tempting for a novice to set up positions without conducting the proper due diligence.

A perfect example is the massive interest the Japanese yen attracted in 2013.

In April 2013, the Bank of Japan announced an aggressive stimulus program designed to double the nation's money supply.

Forex traders piled on their short yen bets, causing the currency to plunge.

While a wager like that may sound like a sure thing, the yen can suffer particularly large fluctuations.

To maximise your chances of success, perform the needed analysis.

Conducting the required due diligence can mean the difference between failure and success.

Such an evaluation can encompass many points but should always include:

  1. exact conditions needed to enter trades
  2. exact conditions for exiting trades
  3. money management plans
  4. expected volatility
  5. expected trade duration
  6. proximity of important economic events.

Once you have performed this analysis, you can place your trades through the relevant software package.

Selecting a reliable and broad platform like the innovative MT4 Supreme Edition, can help ensure your Forex online trading expertise can grow.

MetaTrader4 Demo Account

So what is it like being an online Forex trader?

Online Forex trading is a unique way to make a living.

If you decide to take this route, you'll have no boss, no schedule and no quota.

Sounds great, right?

Not so fast.

There are many variables you must consider before taking the plunge and becoming a professional trader:

...there is no salary…

...and paying the bills will likely require consistent profitability, which is a challenge in itself.

However, if you have the right self-motivation and determination, this may be the role for you.

Keep in mind that as a professional Forex trader - all research, legal, accounting and high-level decision making will be your responsibility.

In addition, discipline will be crucial.

While many CEOs have a Board of Directors to hold them accountable, you will have to hold yourself accountable in this position.

A perfect example of a trader who racked up major losses by failing to maintain discipline is John Rusnack, who placed bullish bets on the Yen during the 1990s.

Starting in 1993, Rusnack used a kind of derivative contract called a forward.

While most would hedge the positions he took, Rusnack failed to do so.

While his wagers worked out at first, the Yen started a long slide that caused mounting losses for this Forex trader.

The perks of online Forex trading

Perks of online Forex trading

For starters, being your own boss means you are in control.

You have the freedom to pick your own hours and live where you want.

In addition, generating a consistent profit by trading Forex makes you recession proof.

But:

...regardless of where the market is going…

...Forex traders have the opportunity to make money.

While everyone else may benefit from positive trends, you may be able to profit whether the broader economy is expanding or contracting.

Once again, all of this may sound great, but it requires you to know what you are doing.

How is all of this possible?

One key factor s the spot market, which refers to the online marketplaces where participants can buy/sell currencies and deliver them on the spot.

This situation is currently easy to conceptualise.

A trader receives price quotes from his broker, who got them from a liquidity provider.

Keep in mind:

  1. all market participants are connected; and
  2. prices are a function of supply and demand.

Contracts for (price) Differences (CFD)

CFDs have made trading available to more people than ever before, by allowing investors to make money on assets without owning them.

During the era of Charles Dow, trading did not exist.

If investors wanted to turn a profit in Dow's time, they could buy a stock and hold it in the hope that it would appreciate.


However, if that asset loses its value, investors could be stuck with a security that nobody wanted.

What's next?

If you're new to trading, sign up for an Admiral Markets demo account and start reading educational materials.

If you've been practising for a while on demo already, sign up for a live account - but again, don't forget to educate yourself.