Getting involved in forex trading is not something you should do half-heartedly. There’s an awful lot to think about before you start executing deals, and first and foremost it’s important to recognise that you could stand to lose money as well as make a profit.
It’s certainly a popular practice and one that has shown a rapid rate of growth. The latest triennial survey from the Bank for International Settlements (BIS) reveals that daily volumes of trading on the FX markets grew from $5.1 trillion to $6.6 trillion between 2016 and 2019.
It’s certainly a fast-paced, volatile world and if you’re new to it then it can be easy to feel overwhelmed. With that in mind, here’s a beginner’s guide to trading forex.
What is forex trading?
The word forex (often shortened to FX) is a portmanteau of ‘foreign’ and ‘exchange’. Essentially, it revolves around how much of one currency is required to purchase another. The idea is to monitor the market trends and how the value of currencies fluctuates, before acting on that analysis by buying low or selling high.
How can you get started?
Choosing the right forex broker is a crucial early step. Many brokers will feature plenty of useful guides and informational resources on their websites to help you get up to speed before you start. They’re also likely to offer free demo accounts, which allow you to gain exposure to the markets and understand how the platform works without having to risk any of your capital before you are ready.
When and where can you trade forex?
There are major forex hubs located across the globe, from New York to Singapore and Sydney. The vast span of time zones means you can access the markets 24 hours a day, Monday to Friday. For example, a forex trader in London could start executing deals when the Australian and Asian markets open in the early hours and keep going until those in the United States close late at night.
What are some of the factors that can affect the FX markets?
The value of a currency could be affected by all manner of things – for example political unrest, announcements from central banks or the demand for commodities that are heavily linked to that region.
Which currencies are traded most often?
According to the latest data released by the BIS, the US dollar is involved in 88% of all trades and is, therefore, the most popular currency by far. The euro is next on the list, at 32%, while the Japanese yen (17%), British pound (13%), and Australian dollar (7%) make up the rest of the top five.