What is Forex and how you can make money on it
The ideal of the free man travelling around the world with a good income is not only popular with IT professionals. Many people would like to have a stable income and the opportunity to earn from anywhere in the world where the Internet is available.
It is quite realistic to realize this dream by Forex trading. In this article we will dwell on the opportunities of the Forex market.
How did the Forex market emerge and why is it profitable?
The decision to freely convert currencies, which was made by the leaders of economically developed countries over forty years ago, laid the foundation for the formation of the currency exchange market. The abolition of the strict binding of national currencies to gold has benefited not only the global economy, but also millions of people making money on the Forex exchange market. The name is derived from the English Foreign Exchange.
When foreign exchange rates are set free, the value of national monetary units is determined by the free market on the basis of a supply and demand relationship. In a market currency becomes a commodity; you can buy it cheaper and sell it more expensively, like any other commodity, and make money at the same time.
Currency as a commodity has a number of undeniable advantages:
- it does not require warehouses with expensive rents;
- it can be traded on the Internet directly from home or any other location;
- organisation of the business does not require large investments, as at the start of any other business;
- Currency trading does not require special economic education.
Experts consider the foreign exchange market to be one of the most liquid markets. This means a simple fact: currency as a commodity can always be bought and sold. In the huge global market thousands of transactions are being made at the same time. The daily volume of forex trading today exceeds 3 trillion US dollars. So, how can a common person make money on it?
How does Forex work?
The international currency market is a number of large financial centres located in Europe, America and Asia, which interact with each other. The system generally operates around the clock due to time zone differences in London, New York and Tokyo, where the major centres are located.
Transactions in the foreign exchange market are done via computer terminals and electronic trading systems. Thanks to this, Forex is widely available to everyone who wants to get involved in currency trading.
The main participants of currency trading are banks, professional and state-owned traders, as well as major investors. They conduct the larger volume of transactions, have a major impact on the movement of currencies and shape the pricing policy on the market.
Historically, the goods in Forex are not a single national currency, but currency pairs. The most popular currency pairs among traders are Euro-Dollar, GBP-USD, USD-Swiss franc and USD-Yen. They are characterised by high price movement, which allows you to earn good money on buying and selling.
How Do Individual Traders Earn in Forex?
One specific feature of Forex trading for individual traders is that they trade through a broker. The importance of this intermediary is difficult to overestimate. Exactly broker provides trader the sum, required for entering the currency market, which is also called "leverage".
For example, using 1:100 leverage an individual trader can enter the market with a personal sum of 1000 Euros to make a deal of 100,000 Euros. The earnings from the transaction remain with the trader and the leverage amount is returned to the broker. It is a principle of margin trading, which allows individual traders to earn on Forex with relatively small amount of money.
So where do you start as a trader? The answer is obvious: You should start by registering on a broker's website. It is important to choose a brokerage company responsibly and seriously as the success of the whole affair depends on it. Firstly, you should familiarize yourself with the trading conditions of the company. Secondly, it is necessary to read reviews of the clients of the broker to avoid meeting with fraudsters.
Beginners can be advised to register with those brokers, who provide free demo trading platform, mini forex accounts, qualitative training materials, webinars, video lessons on the subject of trading. Mastering a new profession will require both personal efforts and professional information from professionals. It is important that the brokerage company is reliable and trustworthy.