Every day, traders transact trillions of dollars in the foreign exchange market, minting unbelievable profits from these transactions. And in recent years, it has become clear that forex trading is a one-way ticket to a lucrative career. As such, more people have waded in these waters, taking advantage of forex bonuses like these. So, what makes forex trading so interesting? And what should you know about it before you throw your hat into the ring?
- Forex is Synonymous with Foreign Exchange
Have you ever wondered what the link between forex and foreign exchange trading is? Well, these relate to the same thing. The foreign exchange market is known as forex. And as such, trading in it amounts to forex trading. Get it? – foreign exchange. It comes from the first three letters in foreign and the first two letters in exchange. So, the next time talks about forex trading, you can know for sure that they are talking about exchanging currency pairs. And yes, that’s what forex trading entails – trading in currencies based on their values.
- It’s Lucrative
There’s got to be a reason why people quit their 9 to 5 jobs and take up forex trading full-time. And the reason is the money. After all, with trillions of dollars in circulation in this market, what’s to stop you from making a profit? Be warned, though – it’s easier said than done. To get your footing in trading, you need to dedicate a lot of time to learning how to trade. So, before you quit your job and hand in that resignation, get the basics covered.
- It’s Bigger Than the Stock Market!
Of all the financial markets in the world, Forex takes the cake. It has a value of (wait for it) $1.93 quadrillion. And if you’re having a hard time picturing just how much this is, it’s almost three times the value of the global GDP! That’s how much money is in this financial market. Did we mention that the Forex trading volume is more than 50 times that of the NYSE?
- Forex Trading is Risky
The money is good. No, scratch that – amazing! It’s enough to get anyone motivated to look into what forex trading entails. But what most people might not tell you is that forex trading is highly risky. Any trade that involves high volatility (like forex trading) requires a lot of strategizing. You have to leverage your capital, assess and mitigate your risks and keep adjusting your trading position. And if you can’t keep up with these requirements, you can make huge losses.
- It Has High Leverage
You might have heard traders talking about leverage and wondered what it is and why it matters. Leverage allows you to borrow funds to increase your trading capital and thus your trading position. So, even if your account balance may not be the best, your broker can sort you out using margin trading. And you can use this to profit from price changes in currency pairs. How great is that?
- Not All Trading Platforms are Similar
There are different Meta trader platforms in the market, and each broker chooses what is best for them. Examples include the MT4 and MT5 platforms which have been subject to debate in the last few years. Some brokers even create their platforms to enjoy more control over the transactions. Thus, when choosing a broker, you must assess their platform’s reliability and compatibility with your trading goals.
- You Can’t Escape Analyses
If you want to succeed in trading, you must back your transactions with objective analyses. And the two most important ones are fundamental and technical analyses- fundamental analyses focus on the external factors affecting the forex market. Examples include political shifts, social motivations, economic changes, etc. Technical analyses look into the trades within the market. Using these factors to inform your trading decisions enables you to avoid making short-sighted moves.
- Forex Trading is not Crypto Trading
Cryptocurrency trading is another popular trading option that has led to the rise of digital millionaires. Remember the Bitcoin millionaires? But it is not a form of forex trading as forex trading deals with forwards, futures, currency swaps, and options. On the other hand, Bitcoin is a digital currency that allows you to transact anonymously online. You can trade Bitcoin for fiat or digital currencies using exchanges. You can even use it to fund your forex trades on some platforms. But the two are not the same.
- There are Lots in Forex
We are not talking about empty properties you can invest in – we are talking about the minimum traded amount for each currency transaction. Usually, this is equal to 100,000 units of the base currency. Once you master the lingo and the calculations associated with these lots, it becomes easier to make trades.
- Traders Can Make a Pip About It
Pips, also known as points, are the differences between the selling and buying prices of currencies. This difference is also referred to as a spread. And it determines whether you make a loss or a profit.
There is no doubt that forex trading is highly lucrative. After all, we have witnessed people become overnight millionaires through trading. Even so, it’s best to arm yourself with basic trading strategies before putting down actual cash on trades. It could save you a lot of money, time, and headaches. All the best in your trading career!