Foreign exchange currency pairs trading, or forex for short, has become the most active set of markets in the world, and see trillions of dollars exchanged. This is a place where a lot of investors head to try to make it big, but it takes a lot of knowledge, experience, and a little bit of luck to do this.
If you have decided to join the ranks of forex traders, you are going to need to understand the basics before getting started. There is a lot to learn, and the process is ongoing, but having a solid understanding of the system, its markets, and brokers is going to help you build a solid foundation.
What is Forex Trading?
It starts with knowing exactly what forex trading is, and how it works. You are trading in currencies, basically buying one and selling another in one go. You will be betting on the exchange rates either going up or down based on activity throughout the days and weeks. As there are constant fluctuations in prices throughout the day, an active trader can be making moves all day buying and selling various currency pairs.
Types of Forex Markets
There is not just one forex market to trade on, and there isn’t even just one type of forex market to deal with. Depending on what type of trading you would like to involve yourself in, there are three types of forex markets to look at.
A vast majority of traders are going to do their business on the spot market, as this is by far the most active and liquid of the three types. On the spot market, you can buy and sell currencies in real-time, which is where a lot of the excitement of forex trading comes from. These transactions will have people buying and selling currencies based on exchange rates, and they are paid for in cash.
The forwards market is going to work a little bit differently, as there is no actual currency being traded between parties. If you want to get in on this type of market, you will be buying a contract that gives you rights to a certain amount of currency, at a certain price, at a specific future date. These contracts are done between two individual parties who have come to terms with the specifics.
The futures market is similar to the forwards market, except the contracts are bought and sold on commodities markets. There are very specific details with these contracts, including things like currency amounts, specific prices, minimum increments, and settlement dates. Both of these types of trading are going to be for a more long-term minded investor.
There are many different options if you are looking for a broker, just look at these top 10 Australian forex brokers, and they are all going to offer various trading platforms, tools, and other advantages. It is essential that you find a broker that is going to give you a user-friendly platform, great software, market research, and most importantly, the currency pairs and market access you need.
Becoming a Good Trader
With a lot of patience and hard work just about anyone can become a good forex trader. It is going to help by going with one of the best ECN brokers, but that is not going to guarantee you success. It is really about learning as much as you can, creating good habits, and understanding and appreciating the risk of it all. With time and practice, you can become a wizard at forex trading.