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How Forex Works: Start Trading Today
Knowing how Forex works is useful for all people seeking to understand economics and finance. A deep understanding of what Forex is and how it works can significantly increase the percentage of profitable transactions, as well as help you learn how to make money in different financial markets.
How Forex Works - Features and Aspects
The structure of the financial market includes several main segments, among which the most famous are the foreign exchange and stock markets. Foreign currencies are bought and sold on the foreign exchange market, and shares of large companies are predominantly traded on the stock market. The popularity of these markets is due to the fact that any person can enter them. With the proper knowledge and free capital, significant profits can be made.
The foreign exchange market or Forex works on the principle of exchanging one currency for another. In 1944, the Bretton Woods system was born and the governments of different countries agreed that their national currencies could be freely exchanged. Initially, the exchange rate was fixed, but in 1976 a system of floating rates appeared. Due to this, the value of one currency began to change, which made it possible to obtain speculative profits. Many have realized that it is enough just to buy some currency, wait until it rises in price, and sell it at a more favorable rate.
This is how the Forex market was born. Initially, only influential participants such as banks, financial companies, and government agencies could take part in it. Soon, private individuals also gained access. The convenience of working with a broker is that you can start working in the Forex market with a minimum capital. Some brokers allow you to start trading even with borrowed funds.
How Much Can You Start Trading on Forex?
Novice investors are primarily interested in how much to start trading on Forex. It is important to immediately clarify one misconception: the lower the amount of the broker's minimum deposit, the better. Many surf the web in search of a broker offering to start with $5-10.
In fact, there is nothing good about a low threshold for entering the market, since Forex trading is carried out in something like 100 thousand dollars, which means that with a deposit of $5-10, even an order of 0.01 lot will have to be opened with significant leverage. If the price moves a little against its position, Margin Call and Stop Out can follow almost instantly.
The more money is deposited, the less the risk, so everyone who takes their first steps in the financial markets should not start with $5.
Experienced traders advise not to trust the stories about how to start trading on Forex from scratch. For example, having $3000 and risking no more than 2% of the account amount on each trade, you can already earn about $60 + per day.
With deposits of $250-500, if you risk no more than 1% on each transaction, on average, you can earn $5-10 per day. At this rate, within a year, you can increase your income to several thousand dollars. How much you can start trading on Forex depends largely on the instrument with which the trader will work.
For standard currency pairs like EUR / USD, USD / JPY, USD / CHF with low or medium volatility (amplitude of price movement), $100-300 will be quite enough, but highly volatile ones, like USD / ZAR, USD / NOK, USD / RUB , USD / MXN, etc. require at least $500 of the initial deposit.
How to Choose a Forex Broker
How to Choose a Forex Broker
Well, we decided on the required amount, but some questions are still left. How should you start trading on the Forex market? Which site should you choose? To enter the market directly, receive quotes, and start trading, you will need to:
- Find a broker;
- Register with the website;
- Open an account;
- Make a deposit;
- Download the trading terminal;
- Select asset(s), analyze, open a position, and make a profit.
The choice of a broker is a subjective matter. Many general rules on how to start trading on Forex exist.
Here is what to look at when choosing:
- The number of years that the company has been working in the service market. The longer, the better. If the company has serious problems, during such a time, they will certainly manifest themselves.
- Regulation. The presence of a license from serious regulatory authorities indicates that the company is responsible for the quality of its services and is focused on long-term work. If a broker is regulated only by CySEC (Cyprus Securities Commission) or other similar offshore organizations, then the trust is much lower than in those who are regulated by CIF, FCA, MiFID, and CRFIN.
When a broker is selected, you only have to register. The registration process may differ slightly from broker to broker, but, in general, everything is similar. You will either have to immediately enter all the basic information about yourself, or your name and email/phone number alone. You’ll get a link to confirm and continue the process. Indicate such details, as:
- Real full name;
- Date of birth;
- Country of permanent residence;
- Phone number.
Also, before you start trading on Forex, you will have to confirm your consent to the processing and storage of data, as well as accept an agreement on the provision of services, which will highlight the responsibilities of both parties. The password is either invented by the user or generated automatically and sent to the specified email or SMS to the mobile. Then, if desired, it can be changed in the personal account.
In addition to entering data during registration, you need to verify your account (confirm the accuracy of the entered data). To do so, send a scan of the passport’s main page or other official identity document, as well as a scan of the registration page.
That is it! Now, you’re ready to get started and make money on Forex!