Forex Trading: A Beginner’s Guide from CommexFX
As investors look for alternatives to the stock market, many of them are turning to Forex trading, according to CommexFX, an online Forex exchange. Rather than taking place on a centralized exchange, as you would see with equity or bonds, Forex trading takes place on a global, decentralized market. When making trades, you basically decide whether you think one currency will rise or fall in relation to the other.
Before you decide to engage in any type of investing, it makes sense to understand the market so you can make better decisions. Here are some tips for beginners from CommexFX, which explains what makes Forex trading unique, and how you can improve your chances of success:
CommexFX Explains How Forex Trading Works
Forex trading's decentralized market is facilitated by financial centers around the world and by Forex exchanges like CommexFX. The Forex market is the largest, most liquid market in the world, with a volume of around $4 trillion per day.
Forex trading centers and exchanges act as “anchors” where traders can go to buy or sell based on the relative values of currencies. It’s a truly global market, with exchanges operating all over the world, and the ability to buy or sell almost any currency. In fact, you can trade any time of the day or night – except on the weekends – since there’s always trading going on. Remember: It’s always daytime somewhere.
When you trade with Forex, trade currencies in pairs. In reading a quote, it’s important to understand that the first currency listed is the “base,” and the second currency listed is the “counter.” According to CommexFX, it’s important to keep in mind that a currency can be rising and falling simultaneously. The US dollar might be higher against the euro, but be down against the Japanese yen. When trading Forex, it’s vital to consider the movements of individual pairs rather than assume that one currency will be higher or lower across the board.
If you want to trade the currency pair EUR/USD on an exchange, understand that the quote is expressed in euros, since that’s the base currency. If the pair is quoted at 1.3485, that means that it takes about $1.3485 to equal one euro. You enter your position, deciding if you think that the euro is going to gain against the US dollar (buy) or if you think it’s going to lose ground (sell). If you’re right, and the currency pair moves as you predict, you earn money.
How much you earn depends on how long you maintain your position, and how much the currency pair changes when you exit the position. One of the keys to becoming a successful Forex trader is gaining experience so that you have a good idea of when to enter and exit various positions. CommexFX explains that experience and discipline are vital if you want to develop into a successful Forex trader.
One of the great things about Forex trading (and another thing that makes it unique) is that there are no commissions or trading fees involved. Dealers like CommexFX make money on the “spread,” which is the difference in what you pay to buy (or what you receive to sell). This means that, once you overcome the spread, everything you make is pure profit.
Recommendations for Beginners
Because the smallest change in a currency pair can result in huge profits (or losses), it’s important to be careful about what you are doing. Some of the things CommexFX recommends for beginners include:
Practice With a Demo Account
Most Forex dealers offer demo accounts that you can use to practice with the platform and get the hang of Forex trading in real time.
Be Wary of Using Excessive Leverage
It’s possible to trade huge amounts, but you need to be careful. CommexFX warns that while using leverage can result in bigger gains, it can also mean bigger losses. Forex is unique in that there is no limit to how much currency you can buy or sell, so you need to be mindful of your risk tolerance.
Take Your Profits
It’s easy for beginner – and even veteran – Forex traders to get greedy. However, instead of trying to “win big” with a trade, it makes more sense to take your profits when you can. Small profits tend to add up quickly when you trade Forex.
Create a Trading Plan
As with any investment, it makes sense to create a trading plan. You wouldn’t invest in stocks without a plan, so it doesn’t make sense to invest in Forex without a plan. Make it a point to understand what you hope to accomplish with your trades. Since it’s so easy to get in and get out of any Forex trade, you need to have an idea of what you want to accomplish.
Forex is unique among markets. There are fewer rules, unlimited liquidity, no commissions, and no limits to what you can accomplish. However, like any other investment, there are risks. In order to make money at Forex, says CommexFX, you need to understand what makes it unique and educate yourself as much as possible on the potential risks.