The Basics of Forex Trading and Forex Brokers: A Guide
Once upon a time, when someone mentioned foreign exchange trading, one usually thought of traveling. Further, when people travel outside the borders of their country, they exchange their domestic currency with the one in the country where they travel to. This is done with the help of banks, brokers, and exchange offices.
Nowadays, foreign exchange trading has an entirely new meaning. It can be even shortened to just ‘forex’. This depicts an investment rather than a simple exchange of currency for shopping abroad. Some people do it for fun whereas some to increase their revenue. To aid them, there are specialized forex brokers.
We’re sure that all of this raised a couple of questions in your mind like what forex trading is and what role the brokers play. Don’t worry, dear reader, as in the following guide, we’ll try our best to outline some of the basics regarding the topic of forex.
How Forex Trading Works
The basis is that forex trading is just like trading with bonds or stocks or similar. The money and the sums fluctuate constantly. Sometimes you lose and other times you win based on what’s happening on the market as well as what you have in your portfolio.
It may all sound very interesting, but it can be dangerous for new investors who aren’t fully aware of what it means. And there is no winning formula, otherwise, everyone would be a winner. So even experienced traders can find themselves in a situation where their balance shows a minus sign. That’s why forex trading may seem like a technique for scamming which is very, very far from the actual truth. It’s a concept understood by a few people who are real insiders and professionals in the field.
Moreover, two of the most significant aspects of forex, beginners should grasp are leverage and the investor’s feelings when trading.
The forex trading leverage enables the investor to trade with money that they don’t have at the actual moment of trading. For instance, according to one of the possible ratios, you could have two thousand dollars on your account but trade four thousand dollars of currency. At first glimpse, that’s super cool, but it isn’t when we tell you about the increasingly high risk of loss at this ratio.
Another important aspect is the feelings the investor experiences while trading. Let’s elaborate further. For instance, the market can suddenly go in a worse direction, one that you haven’t previously anticipated. This is a common situation because the market often goes up and down. Experienced traders will stick with their trading plan and abandon the ship if the situation is headed to a catastrophe. On the other hand, the beginner will stick with the original plan, which may lead to thousands of dollars of losses and even more. This is one of the basic differences between a professional and a newbie at forex trading.
That’s why before one jumps into the waters of this type of trading, it’s recommended to try a demo version to get a hang of the things. Also, developing a special trading forex plan is essential as we previously mentioned.
Finding a Reliable Forex Broker
Before we go into some of the features that make a forex broker seem like a reliable one, we should explain what they do. For starters, the role of the forex broker is to introduce the trader to the market for forex trading so that the investor can buy or sell and eventually make the transaction. Forex brokers are usually firms that give access to a forex trading platform. Of course, they need to be compensated. They do so by getting a little something from the trading the investor makes.
Features to Consider
Many things go into making a broker reputable and trustworthy. Subsequently, we’ll explore some of the main fields that are important when you consider if you want to hire a forex broker.
- Check the regulation – Even though it may not seem like a vital aspect in the beginning, in the long run, it is something many forex traders worry about. Being aware of the fact that the broker you’re dealing with is regulated brings you peace of mind because if something falls short, you know that you can take legal action. Many traders were left empty-handed when unregulated brokers suddenly shut down.
- Read reviews – Users are saying the truth about their experience with a broker most of the time. So it can be pretty helpful and insightful if traders check out the reviews of past clients.
- Head to forex websites and forums – Multiple websites can be found online that compile information and even the tiniest details about more than 100+ forex brokers. What’s more, the forex forums are another alternative. There, one can ask around regarding the whole trading experience and all of its aspects, including brokers.
- See if the broker is transparent with you – When we mention transparency of a broker, we primarily think of the financial kind. Traders should be aware of how strong the broker is financially speaking. One of the reasons is that the forex market can be unpredictable and dynamic, thus the broker should be able to withstand any possible shock that may come their way.
- Open a demo account – Many traders like to use this as a kind of test to see if the broker fulfills their needs and expectations. Opening a demo account can be eye-opening and can demonstrate to the potential trader how it is to work with that particular forex broker.
- Browse search engines – Although traders may not get all the information about the broker they need on Google, it can be a good first initial step to finding some options for available brokerage.
Over to You
We talked enough, so now it’s all up to you. What do you make of the whole forex trading thing as a modern branch of investing? Have you done it before or are you looking into doing it? Do you have any experience with a broker? We’d like to hear your comments!
Disclaimer: This is a paid post and should not be considered as news/advice.