An Introduction to Online Forex Trading

Currencies / Forex Trading Mar 10, 2018 - 03:34 PM GMT

Forex stands for foreign exchange, the currencies. Forex trading is the process of buying and selling of foreign exchange or currencies. Statistics indicate that the online forex trading is increasingly getting more popular and that the forex market has grown at least 20% in the last five years. Grab more information about trading from the Admiral Markets.

The way the trader makes money

The forex trade basically works on the principle of borrowed material. That is, there is a difference in selling a belonging of yours and selling a borrowed thing. In forex trade, though you are selling one currency, you are also borrowing from another. That means a trader borrows a currency which is standing at a higher price. When you sell the currency back to the broker, the difference between the two amounts is the profit the trader makes.

Let us take the example of USD/JPY. If it is stipulated that the value of JPY will be going down, then the trader would sell this pair and that means he would buy yemen and sell dollar. In this case, the trader will have to borrow USD from his broker. Now, if it happens as per the stipulation, the value of JPY increases and the value of USD decreases, then the trader would have to return the borrowed dollars to the broker at the low price in which it stands at the end of the day. Since the trader has sold yemen at a bigger price, the difference is the profit that the trader makes.

Checklist needed to have an online forex account

There are many online forex accounts available that can be of use and even brokers. You should choose it carefully and you need to be assured of several factors such as what is the online currency that the account generally is dealing with, then the degree of spreads that the broker charges, the different offers on the currencies that is available, and so on. Do check these factors and then open an account and go about trading.

The broker is your account manager

First, you should decide as to what is the account you require sicne there are many trading currencies available online. Also check the spreads that is charged by the brokers. The spread is the difference that you get between the selling price and the buying price of the currency you have traded in. Choose an online forex trading account that charges a narrow spread as the brokerage. Also, your broker should allow you the freedom to trade in a variety of currencies. Do not restrict yourself to just few. Most importantly, you should know how you are going to manage the account and you should have a deep idea about forex trading. Hence, understand, learn and know the terms and the prices of each currency you have decided to trade in.

The liquidity factor is high: According to the Admiral Markets, the online forex trading platform serves great for all because there is no chance of getting stuck up. Since online forex market is a huge one, you will always find someone at the other end always ready to buy the currency you are selling. The online account also gives you an option as to set it in an automatic mode so that it closes on its own as soon you have reached the profit level you have set.

A comparison of online forex trading with stock trading

Few to look over: In stock trading, you will have to look around at thousands of companies. That also means, if you are not prepared enough, you are going to lose chances of winning or getting profits. Not everyone will have that much time to go over thousands of companies and checking their prices. In online forex trading, there are only dozen currencies or so and that too the majority of the trading takes place in four pairs, known as ‘majors’.

The timing is the key: When it comes to stock market, you will have to put in all the main working hours and the market closes in the evening. That means, it is not possible to trade in a time that you will have at your disposal. Online forex trading is open 24 hours and that means you can choose to trade any time of the day or night. That is one main advantage of online forex trading over stock market.

Your orders are accomplished in real time asap: You trade in real time with online forex trading. You are shown the value of the currency and you can directly trade with the value shown.

No long or short of it: Unlike stock market, in online forex market, there is no limit on short selling. No matter how the trader chooses to go, long or short, he can do so.

Decentralization: In stock market, the exchanges are centralized and that means middlemen are involved and you will have to pay them a cost. The online forex market is decentralized and the traders get access to different quote rates that the dealers present and that means the traders get cheaper costs.

No sale or buying can dictate: In stock markets, it is usually depending on buying and selling. But in online forex trading, these factors do not decide the functioning of the market. None of the buying or selling can dictate as to how the market will function. The liquidity is also high and thus gives an advantage to the trader.

No analysts, experts or firms can influence: In stock market, the opinion of the experts and analysts do matter a lot. Even brokerage firms can play an upper hand. The value of a currency depends on how well or bad the economy of that particular country is doing. Also, foreign exchange is a prime necessity for global markets and brings in huge revenue for financial institutions, especially banks. Thus, analysts and experts can only look at the forex market and give their opinion but they can’t stipulate, predict or cause any effect on the market.

By Kavinesh

© 2018 Kavinesh - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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