If you are interested in taking up trading, you are interested at the right time as it has never been easier to get started. In the past, trading was reserved for professionals and the super-wealthy. Today, you can start trading with an app on your smartphone or through a simple broker’s website. There’s nothing stopping you from investing, even if you only have a small amount of money to get started with.
Forex trading especially has become far more popular than ever before. Forex brokers now exist, making it easier than ever for someone with an interest in trading to start trading currencies. But, there are some things to figure out. You need to find a professional and reputable forex broker, as well as learn the basics of forex trading itself. In this article, you’ll find all that information, so you too can get involved in the huge market of forex.
What is Forex Trading?
In essence, forex trading is quite simple. It involves buying and selling currencies in the hope of making a profit. You need to understand the markets and how currencies can be affected by events in the world. Various factors can change the price of a currency, including political events, social events, or economic factors. So, though it is easy enough to buy and sell currency through a broker, you need to be sure you understand the market and make trades based on education rather than speculation.
Currency is traded 24/7, five days a week, across the world. This means the market is always open from Monday morning in the east, to Friday night in the west. It is important to keep this in mind, too, as prices can fluctuate in different countries overnight as different markets start their buying and selling during their waking hours.
How to Find Your Broker
Before you learn the basics of forex trading, you’ll need to find a professional broker in your area. They must be in your country, as trading rules can be different in different places. All you need to do is search for forex brokers to use in South Africa, for example, and check who comes up. Look at reviews and ask the opinion of anyone you know who trades in forex to help you make your decision. Aside from this, there are a few important factors to look for within a brokerage app or site, which will be explained in greater detail shortly.
How Does it Work?
So, finding a broker is a simple online task. But, trading currency isn’t quite as simple as just clicking the “buy” button. You need to understand how the trading system works.
With forex, you buy and sell currencies in pairs. You will have a base currency and a quoted currency. The pairs are listed like this: EUR/USD. In this example, the euro is the base currency and the USD is the quoted currency. To buy the dollars, you will, in turn, be selling your euros. This is different from stocks and shares, where nothing needs to be sold in order to buy a stock.
The hope here is that you sell your euros for dollars just before the price of the dollar increases. This means that if you choose to trade back to your base currency, you will receive more of it, therefore making a profit.
What is a Broker?
So, where does a broker come in and what do they do? Simply put, the broker is the platform that allows you the ability to make these trades. They build their platform and facilitate the trades as and when you tell them to. So, they hold your money in whichever currency you want, then execute trades against that currency when instructed. This is quite similar to many other trading apps, where a stocks app may similarly hold your currency until you are ready to exchange it for a stock or share.
Why Brokers Exist
In the past, brokers were simply banks. Trading currency was exclusive; only those with a huge bank account and a good relationship with the bank manager could buy and sell currency. It also had to be executed manually, with physical cash swapped for another currency’s cash. For a few decades, though, brokers have acted as a middleman, taking away the need for bricks and mortar banks. They do exactly what the bank might’ve done in the past, but do it digitally instead.
How do Brokers Make Money?
Brokers make money off the trades you make. If you make a profit on a trade, they will take a percentage of your margin of profit. This is common, though different brokers calculate their margins differently, so it’s definitely worth researching different broker’s fees before settling on one. Some brokers also charge for “professional” features, meaning you can access different kinds of trades and more currency pairs.
Features You Might Want
The most common type of trade in forex is called a market buy. This means you are simply purchasing a currency at the current best price in the market. However, there are more interesting and useful types of buy orders you may want to look for in a broker. Stop-loss orders, for example, allow you to order a sale when a currency dips to a certain value, therefore stopping any losses you may make. Look for a broker with all available order types and all the major currency pairs.
Regulation is Key
Finally – but very importantly – wherever you are in the world, forex brokers must be regulated. It is important that you check whether they are regulated by your government. This means your money is protected, and the broker cannot lose it. In South Africa, for example, the FSCA regulates all trading platforms and brokers, ensuring everything is traded legally and professionally.
The market, then, is quite easy to navigate and understand, especially when you are using a professional brokerage app. Ensure they are financially regulated and offer all the currency pairs you wish to trade with. Then, deposit some money and start making trades. Always do your research and trade with money you can afford to lose.