While there is an advantage of getting tons of learning tools and materials available at no costs, it also implies a risk.
In the stock market, a trader may get professional assistance from portfolio managers, trade advisors, and relationship managers. Contrary to that, Forex traders have to trade on their own with little or no assistance.
That’s why, a disciplined and continual self-directed learning is essential throughout the trading career.
Most beginners actually quit during the initial stage, mainly because of losses encountered due to limited forex trading knowledge and inappropriate trading.
The forex market has no restrictions on directional trading. This means that if you think a currency pair is going to increase in value, you can buy it (or go long), and if you think it is going to decrease in value, you can sell it (or go short).
Because currencies trade in pairs, you’re always actually buying one currency and selling the other no matter whether you’re going long or short. Let’s say you’re trading the British pound/U.S. dollar (GBP/USD) currency pair. You would buy that pair—that is, buy the pound and sell the dollar—if you expected the value of the first currency, known as the base currency, to increase in value in comparison with the second currency, known as the quote currency. You would sell that pair—sell the pound and buy the dollar—if you expected the value of the pound to decrease in value in comparison with the dollar.
Unlike in the stock market, where you first borrow shares to sell short, in the forex market, selling a currency you don’t own is a very simple process in which you just place a sell order.
Forex brokers often allow traders to buy and sell in the market using significant amounts of leverage, which gives them the ability to trade with higher amounts of money than what is actually in their accounts. If you were to trade at 50:1 leverage, for instance, you could trade $50 for every $1 that was in your account. That means you could control a trade of $50,000 using only $1,000 of capital.
The cost of a transaction is typically built into the price in the forex market in the form of the spread. Forex brokers pocket the spread as their payment for facilitating the trade.
Spreads are measured in pips. For most currencies, a pip is the fourth place after the decimal point, or 1/100 of a percent. (For trades involving the Japanese yen, a pip is the second place after the decimal point, or 1 percent.)
In a forex trade, if the bid price was 1.3244 and the ask price was 1.3246, the spread for the transaction was 2 pips.
Brokers may also charge a commission, either a flat fee or one based on a percentage of the amount of the transaction.
Liquidity is the ability of an asset to be quickly converted into cash. In the world of forex, the high liquidity means large amounts of money can be moved into and out of currencies with generally small spreads—the differences between the bid prices for potential buyers and the ask prices for potential sellers.
The forex market is worldwide, so trading is pretty much continuous as long as there’s a market open somewhere in the world. Trading hours start in the U.S. when the first major market opens, in Sydney, Australia, at 5 p.m. Eastern time on Sunday. Trading ends for the week when the last major market, in New York, closes on Friday at 5 p.m.
You can make use of a free forex demo account to practice forex trading and learn the ropes. Trading with a demo account is just like the real thing, but you’re doing it with “play money.” A demo account is great for those who want to test the waters or improve their trading skills in real market conditions without risking any actual capital. And this is all for free and without any commitment. So give it a try and see the benefits of trading forex for yourself!
A small deposit can go a long way. With leverage you can essentially “borrow money” from your broker to trade with in excess of your actual deposited funds. This is a powerful tool and one of the most attractive features of forex trading. Equiti offers up to 1:500 leverage, which gives you increased buying power and can mean larger gains, but it also carries the risk of larger losses. Please be sure to fully understand the risks of trading with leverage before you use it.
As mentioned above, the difference between the bid and ask price is the broker’s spread and this is the retail transaction cost. Highly capitalized brokers can offer very competitive spreads, thus minimizing your trading costs and maximizing your profits. Equiti offers an average spread of 1.5 pips** for its Executive account type and 0.4 pips** for a Premiere account. It’s important to understand how spreads are measured. For example, if GBP/USD has a bid price of 1.55310 and an ask price of 1.55313, the spread is 0.3 pips.
There are generally no trade commissions, or very low ones for large volume trades. There are also no clearing or exchange fees. Most retail brokers earn their revenue through the “spread,” which is the difference between the bid and ask price. Spreads in the forex market also tend to be very tight (more on that below), making forex trading one of the most cost-effective investment tools. Equiti offers no commission forex trading accounts and accounts with spreads as low as 0.4 pips**.