Things To Know About Beginners For Forex Trading

Well, Forex as the name suggests is a combination of two root words – Foreign and Exchange. In Finance, it stands for the exchange that one has to make for another currency – within the same country or internationally. 

Forex - Definition

Technically speaking, Forex simply means – exchanging one currency for a different currency. 

Reason for Forex Trading:

It is one of the easiest ways to make money, no matter which country you reside in! 

Markets for Forex

Forex trading is practiced in three kinds of financial markets - spot markets, forwards markets, and futures markets.

A spot market is the “underlying” asset on which forwards and futures markets, are based. Therefore it is the largest of all three.

The forward market is a financial market structure of informal over-the-counter which helps us to establish contracts for future delivery of all market transactions. 

A futures exchange is a central financial exchange authority that facilitates standardized future contracts.

Reason for selecting Forex trading:

Forex trading is practiced by Companies, traders, and individuals for two main reasons: speculation and hedging. Speculation is when the traders, investors, and Companies earn through the prediction of currency prices – both rise and fall! Hedging helps the investors to fix the prices that revolve around the prices for manufacturing and sales in overseas markets.   

Volatility of Forex:

Forex markets are more liquid than volatile. The volatility of Forex depends on the different factors – political and financial - that affect the currency of a particular country. Any event like economic instability resulting from payment default or an unstable trade relationship against another currency will cause a volatile situation. 

Regulation of Forex:

Forex trading is subject to jurisdiction. In countries like the USA, where they have excellent infrastructure, the Forex trades are regulated by the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). On the other hand, owing to leverage e issues countries like India and China regulate firms and capital that is used in Forex trading. Europe has the largest pa However, due to the heavy use of leverage in Forex trades, developing countries like India and China have restrictions on the firms and capital to be used in Forex trading. Europe has the biggest market for Forex trading largest market for which is regulated by the Financial Conduct Authority (FCA) in the U.K. 

Currencies to select for Forex:

Ideally, the more liquid a currency is, the better are the earning! This is why the U.S. Dollar is the currency that is traded the most. With high liquidity that is impervious to external events, it becomes easier for Forex to trade with. On the contrary, currencies that are low in liquidity, cannot be traded in huge quantities unless there is a noticeable movement in the market associated with it. Usually, these currencies belong to developing countries. When exchanged for international currency belonging to a developed country, the results are surprisingly good. For instance, a Forex trade of the U.S. Dollar versus the Indian rupee is an excellent choice!  

Begin Forex Trade:

To begin with, you have to educate yourself and become well versed with all the terms, operations, and activities of Forex markets. You have to follow the financial news. Develop a trading strategy and develop a threshold for risk and tolerance. Of course, you need a Demat account or a trading account to begin trading.