Forex trading

Foreign currency trading, or forex as it is more widely known, is a market that is open to everyone, so new investors should be aware that they'll be competing against seasoned pros.

Forex is a rapid and volatile environment with the possibility of large losses, so before venturing into the market, it is essential to have a good understanding of how it works, what to look out for and your potential losses.

Forex essentially involves making a guess about which way a pair of currencies is likely to move against each other. For example - the US dollar and the euro - which one do you think will move higher compared to the other? Getting it wrong means you are on your way to making losses!

But of course, that is a simplistic view of the market - there are a number of different considerations which need to be taken into account.

Firstly, because forex is a leveraged product, it is possible to lose a huge amount of money in one go. Trading with a leveraged product increases the potential profit, but it also exposes the investor to much more risk, so it becomes essential to tread with caution. Leverage simply means that the investor only has to put down a fraction of the total sum at risk.

Secondly, there are two prices that are quoted for every currency, namely the selling price and the buying price. If you suspect a currency will increase in value, you buy it and the broker will quote you an ask price. When it comes to selling it, the broker will buy the currency from you at the bid price. The bid price would be lower than the ask price so in order to make a profit, the currency must not only increase in value, but move sufficiently to send the bid price past the original ask price. The difference between the bid and ask price is known as the spread and this is how a broker makes a profit.

Because the broker earns a living through the spread, there should be no additional commission payable. Also, forex is an international market, which means there is usually a vast amount of liquidity and it is possible to trade 24 hours a day for most of the week.

Despite what some unscrupulous salesmen may tell you, there are no guarantees with forex and it takes a lot of practice, patience and research to earn a profit. There is no substitute for experience, but you'll be aided by using a platform that is easy to navigate and has the features you need.

The platform is the place where you open and close trades and is provided by the broker. A good platform will not just be user friendly, but will also provide you with a range of tools to help you.

A platform is very much a personal preference and we in no way endorse any platform and urge readers to be wary of the losses that may be made by forex trading as well as sellers of forex platforms & courses. However, the best platforms ofer a wealth of forex information as well as customer support, live price feeds and a number of different types of help and guidance.

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