Forex Trading Advice
Forex trading involves betting on the value of one currency relative to another. Every currency is traded in a pair, and all transactions are made in terms of this ratio. For example, the British Pound is traded against the US Dollar in a pair called GBP/USD. The first currency is called the base currency, and the second currency is called the counter currency, or quote currency. Traders use these pairs to make predictions about the strength of the base currency and the strength of the counter currency against one another.
Forex trading is a highly volatile market, and trading can result in a substantial amount of risk. Traders need to know the risk associated with each trade, and then tailor their strategies accordingly. Ultimately, they should always aim to buy low and sell high. To achieve this goal, forex traders must have sound fundamental analysis skills.
One of the benefits of forex trading is its low initial capital requirements. In addition, forex brokers charge lower transaction fees than stock markets. This makes the investment accessible to more people. However, a disadvantage of forex trading is the frequent fluctuations in exchange rates. The market prices of currencies are affected by a variety of factors, including economic and political influence, and there is no central exchange to regulate the prices.
While most forex brokers do not charge a commission, they make their money by taking a margin on the spread. Spreads are the difference between the price at which you buy a currency and the price at which you sell it. The cost of opening a position is relatively low, with just a few hundred dollars or more needed. However, you need to understand how the market works before you start.