Over the past five years or so, we’ve seen a boom in the number of people trading forex. From professional traders to hobbyists and those simply trading for a little bit of extra money on the side, there are a range of different types of trader. Although there are numerous opportunities in the forex market, risks (and misconceptions) are also prevalent, and it’s important that you understand that, should you trade forex, there is no guarantee of profit.
To help you understand the market better, we’ve put together this guide to help you get started and ensure you can make an informed decision before you start to trade.
- What is Forex?
Forex trading is also known as currency trading, foreign exchange trading and FX trading. It is one of the most popular ways for beginners to start their trading journey, but it also offers experience traders the opportunity to diversify their portfolios.
It’s also highly accessible for traders who want to trade outside of traditional working hours, as the forex market is open 24 hours a day, from Sunday through Friday. Nearly £3 trillion of currencies are traded daily, meaning it’s the largest financial market in the world.
- How Does it Work?
When you’re trading forex, you trade what’s known as a ‘currency pair’, where you’re buying or selling one currency for another, also known as exchanging (much like you do when you go on holiday).
When you’re forex trading, you’re speculating on currency price movements. You can either “buy” a currency against another quoted currency if you think the price will rise, or “sell” it against another quoted currency if you think its value will fall.
For example, you would “buy” USD/GBP if you think the value of the dollar will rise against the pound, or you would “sell” if you thought that dollar would fall in value against the pound.
- How Can I Get Involved?
Fortunately, getting involved in the forex trading market is simple, and the prevalence of online brokers means that you don’t even need to leave the house in order to do so.
However, make sure you do your research before signing up with one, as each offers a number of different products and services. Plus, each broker often has their own unique platform, which creates subtle differences.
Before you begin your trading journey, it may be wise to open a demo account so that you can trade risk free. This way, you can test your skills and suitability for trading without risking any capital.