What is Forex? Published on Jan 4, 2021
Foreign exchange, commonly known as Forex, is a decentralized, virtual marketplace where derivatives are traded with no physical exchange of money from one party to another. Forex is the largest market globally as well as the most liquid in terms of volume. Forex is offered five days a week, 24 hours a day, excluding holidays.
Individuals and entities trade for different purposes, whether personal or professional. Some of these reasons are for extra income, speculation, or to hedge and reduce their risk.
The Advantages of the Forex Market
24 Hours / 5 Days a Week
The market is continuously open for traders. For this reason, you can trade anytime and anywhere. All you need is your laptop or your mobile and an internet connection.
High Liquidity
The forex market is an active market with a high volume of trading and nearly $6 trillion turn-over daily.
Low Transaction Cost
The most two common costs associated with Forex are commissions and spread, the latter is the difference between the buy and sell price for any assets while commissions are fixed fees per trade. Brokerage firms offer different percentages of commissions and spreads. For example, INGOT Brokers offers zero commissions on stocks.
Profit from Bullish and Bearish Prices
The unique option for going either long or short on a position is one important advantage in forex trading. This is because investors can benefit from the spike and fall in prices.
Leverage can be Used
Leverage essentially means borrowing an amount of money to invest, which increases the probability of return and risk. For example, if the leverage is 1:100, this means that for every $1000 in your account, you can trade with up to $100K. It is recommended not to invest your full capital trading only one instrument such as Apple Stock. Furthermore, you should always diversify your portfolio, as well as avoid using excessive leverage.
Low investment capital
It is required to deposit as minimum as $100 to begin trading. In order to gain more flexibility, consider depositing more funds. The more you deposit, the higher the amount of income generated which will compensate you for your efforts spent on trading.
Types of Forex instruments
Contracts for Difference (CFDs)
It is an arrangement made in financial derivatives trading, where the client benefits from the difference between the opening and closing of trade transactions. With this type of contract, there is no delivery of physical goods. Also, it is very popular in Forex and commodities products. Furthermore, CFDs are suitable for short term investments and speculation, by betting if the price will go up or down.
Spots
It is a contract to buy or sell at the current price and can be bought with immediate delivery. For this reason, traders are interested in the price difference between the transaction prices, for speculation purposes.
Futures
Futures are traded publicly in a standardized market. The trader can buy and sell the contract at a set date, time, and size. The contracts are traded quarterly around March. Different contracts have a different degree of liquidity, for instance, EUR/USD contracts are more liquid than those in the emerging markets like BRL/USD. Those contracts can be used for both hedging and speculation. All future contracts should be executed two days before the termination date because the purpose is to benefit from the spread and not the physical delivery of the contract.
Options
It is a contract, which gives the trader a choice to either exercise or to lose the premium. There are two types of options Put, which allows the investor to sell, or Call options, which allow the investor to buy. Since the purpose of such contracts in Forex is speculation, the terms and conditions for execution depend on the financial brokerage firm itself.
Exchange Traded Funds (ETFs)
ETFs are like a collective portfolio with different instruments but listed on exchanges. ETFs can be bought and sold throughout the day. This contract has a collection of securities, such as stocks, thus it can be in various industries, or use a number of strategies, including commodities, or bonds.
How to Trade after Selecting INGOT Brokers
Select your Watchlist
Setting your watchlist requires that you first determine the hours allocated for trading. For part-time players, it is preferable to select a shortlist to keep it simple and trackable. On the other hand, the full-time dedicated traders make more than one watchlist, which may contain more instruments. Generally speaking, the watchlist fits between 50 to 75 instruments, and several watchlists can be created.
Decide on Instruments
In the beginning, traders are different in deciding their instruments. Some of them choose their investment based on volume, brands of their interests, or country of preference for diversification purposes. Though to be more rational, studying the market is an essential part to make your decision, therefore research and reading are essential for your journey in the market and forex.
Analyze the Market to Decide on your Positions
It is important to have a look at news, fundamental and technical analysis for the instruments, in addition to its trend which all can affect the assets. Checking the economic calendar will have a significant impact on the decision to go short or long. Therefore, having a strategy for your investment will typically guarantee successful trading.
In conclusion
Probably forex is one of the easiest ways to make money. However, people who begin trading want to do the prep work needed to become an expert in this field. For this, we encourage you to keep an eye on the market, to get the best of it.
