Disclaimer: This is not to be taken as financial advice. It is general advice and not specific to you and your situation

What is Forex?

Forex or FX for short is the process of trading currencies. Think about the last time you were on holiday, you probably went to a currency trader to change your money from your country to the local currency. It is by far the largest financial market in the world and also the most volatile. Traditionally, trading Forex was limited to Intrabanks but thanks to the Internet, Trading Forex is now open to anyone. Like all other trading, FX trading also involves risks and your loses can exceed your deposit.

Why Trade Forex?

Forex Traders are attracted to FX for various reasons including its huge levels of liquidity. Liquidity essentially means that you can buy currencies on demand and sell them off quickly to make a profit. Traders are also attracted to FX because it is relatively easy to access thanks to the Internet. Traditionally it was just the banks and large financial institutions that could trade currencies but, today anyone has access to trading FX from anywhere. Also, the margins to get started in Forex are small as transaction fees are low.

How should you trade Forex?

Currencies are traded in pairs:

Example:

USD/EU

(USD = base currency & EU= Counter currency)

This means you are trading one currency against another, in the case above, you are trading the USD against the EU. The value of the base currency will always be 1 and the value of the counter currency will fluctuate and depend on the exchange rate.

Example:

USD : 1

EU : 0.84

When trading currencies, you will see two prices displayed. These are called the Bid (the price you can sell the base currency) and Ask (the price you can sell the base currency) and the difference is called the Spread.

Where do you trade Forex.

There are plenty of platforms to trade including, IG, FxPro, FXCM and Xtrade. As you would expect, you would be paying a small fee to place an order and these can range from $5 to $10. It is highly recommended to start with a demo account to familiarise yourself with the platform and how it works. Once you are ready to start trading, research about the currencies you are interested in and keep an eye out for news and information that might affect the currency markets.

Final word.

As the largest financial market, Forex is the business of trading currencies and in a globalized world, the need for exchanging money between countries increases every day, meaning the Forex markets are one of the busiest and most volatile markets to trade. Just as trading in the Share markets is risky, Forex also has its own risks as well as opportunities so when trading Forex, one must be alert and learn how to minimize risks.

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