Unlike trading between different types of cryptocurrency pairs, forex trading involves trading between different fiat currencies — and can be much more complex.
With this enticing new volatility in USD vs trading pairs, many crypto traders have been drawn to Forex trading, an area where many actually operated before they switched to “Bitcoin and company” during the lucrative 2017 and 2021 bull runs.
Here follows an introduction to forex trading and all that it entails. Please note that as with cryptocurrency trading, this requires deep knowledge of market technicals and fundamentals and is for the experienced trader only. Buyers beware!
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What Is Forex Trading?
What Is the Basic Concept of Forex Trading?
Below are the possible forms of trading that can be done on a forex exchange:
Options are extremely volatile and carry a large amount of risk. If the price does not go up or down as the holder of the options expected, then their option will expire, worthless, and the seller of the option will profit.
Similar to options, futures contracts are created when two traders agree to take opposite sides of a trade.
Can You Get Rich Trading Forex?
Trading in any market requires a deep understanding of the assets available and good timing to profit consistently. One lucky trade does not guarantee a profit in the future. Consistent profits from forex trading require patience and a proper investment strategy.
Understand that like the cryptocurrency and stock markets, retail traders, or traders who make transactions on their behalf, are at a huge disadvantage to institutional investors. Institutional traders can trade large sums and move markets more easily to spook and take advantage of illiquid markets.
Forex exchanges facilitate a tremendous number of trades daily, making it harder for institutions to take advantage of smaller accounts, but substantial risks still exist if trying to make a significant amount of money too quickly. Making no trades is better than making a bad trade, many prefer to wait for the right moment if trying to net large returns on a single trade.
Is Forex Suitable for Beginners?
Exchanges will usually have a variety of educational materials such as videos, articles and step-by-step guides on how to invest or trade on the platform. Beginners will find forex markets welcoming if it is their first time investing.
What Is a Forex Broker?
Forex brokers provide traders access to a platform for buying and selling foreign currencies. Customers are often global and can use their financial services 24/7 on weekdays to participate in the forex marketplace.
What Is the Difference Between Forex, Stocks and Crypto?
Various financial markets share a lot of financial services, investment strategy and speculation tools, but their main difference is their underlying assets and how they are valued.
Forex vs Crypto
If you’re interested in forex, you may have considered trading cryptocurrencies as well. While they both involve trading currency pairs and are open nearly all the time, the similarities end there.
Cryptocurrency markets are relatively young compared to stock or forex exchanges. New exchanges appear almost daily and virtually zero exchanges are adequately insured if a theft or hack occurs.
Forex vs Stocks
Both marketplaces are popular and have relatively strong safeguards for fraud, but stock markets are not as easily accessed as a forex exchange.
The New York Stock Tokyo and Hong Kong Stock Exchanges are easily accessed if in your country of origin. For non-residents, such as Europeans, purchasing from a foreign stock exchange can be difficult and expensive. Stocks are also only paired with their native country's currency, such as USD or HKD.
How Do You Trade Forex?
A few steps must be completed before trading foreign currencies.
- Open a brokerage account. A forex trading account is needed before you begin trading. Research the most convenient, beginner-friendly brokerage in your home country and open an account. A variable trading account is suggested because it permits smaller trades and has a smaller minimum balance.
- Develop a trading strategy. Before funding your account, create an investment plan and decide on a timeframe and risk tolerance. Are you purchasing foreign currency to hold for several years? Do you plan on using leverage or purchasing options or futures contracts? Decide on these before you begin trading to avoid making careless mistakes.
- Fund your account. Most brokerages should accept nearly every form of payment to fund your account. Bank and wire transfers, credit cards and other traditional payment methods should be accepted.
- Take advantage of advanced trading tools. Once you are comfortable with forex trading, you could consider other forms of investing. Leverage, options and futures are high-risk, but a competent investor can profit immensely if well planned.
If done right, forex trading could be very lucrative for savvy traders who can read the macroeconomic tea leaves correctly. However, as the crypto downturn has proved again and again, fools and their money are soon parted when they FOMO in with little understanding of what they’re doing. Trading is not gambling, and should be treated with the respect it deserves. Stay safe!