When it comes to Forex specifically though, there are a number of benefits that make this financial instrument a very enticing one to trade.
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If you would like to learn more about the differences between the Forex market and the Stocks market, why not check out our comparison article on the topic? And find out which market is right for you! Forex Vs. Forex is the world's largest financial market, with over 5.
To put it in other words, in a single day, more money will be traded in the Forex markets than Japan's entire GDP! Gross Domestic Product. Being the largest, most active financial market on the globe, it is also the world's most liquid market, meaning it is easy for traders to enter into, as well as exit trades, and for the most liquid pairs, they can do so at a very low cost even less than a single pip!
This also means that the Forex market is very volatile, creating many opportunities for traders to make a profit on both the positive and negative movements of currency pairs. Forex is the one financial market that never sleeps, meaning you can trade at all hours of the day or night. This means that the trades take place directly between the parties holding the currencies, rather than being managed via an exchange.
Consequently, the Forex market has never been restricted to the business hours of any one exchange. However, since the Forex market is a global market, it means there is always a part of the world that is awake and conducting business, and during these hours their currencies tend to experience the most movement. As a trader, this means you can trade whenever it suits you - if you work during the day, there will be currencies available to trade before or after work.
If you have children but are at home during the day, you can simply choose a different currency. In the Forex market, you can trade 24 hours a day, 5 days a week. One of the most common trading and investment philosophies is to 'buy low and sell high' - this is particularly the case with long-term investments, such as investing in stocks or bonds, which rely on the asset increasing in value. In the Forex market, you can also sell high and buy low. This way, you can potentially make profits on both downward and upward trends. As mentioned earlier, in a long trade also known as a buy trade , a trader will open a trade at the bid price, and will aim to close the trade at a higher price, making a profit on the difference between the opening and closing value of the currency pair.
When trading a single lot, that would make a USD profit. Traders can also make short trades also known as sell trades , where they sell a Forex CFD at the ask price and, once the price drops, buy it at a lower bid price, and profit on the difference. There are few additional costs as well - most Forex trading accounts have little or no commissions , order fees, and account management fees. If there are any trading fees, these are usually a markup the broker has added to the spread. One of the greatest advantages of Forex trading is that it is one of the most developed financial markets in terms of technology.
While many markets are accessible via old-fashioned trading platforms, there is constant competition in terms of the software available for trading the FX market.
With access to all this software, Forex can be traded from anywhere in the world - and all you need is an internet connection. Trader's also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets' demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.
If you're still reading, your next question is probably, "How can I become a successful Forex trader? This is the main focus of the rest of this article - we'll outline not only how you can start trading, but also some of the most popular trading strategies for making a profit on the Forex market, which exercise risk management.
The first step, of course, is getting set up to trade, which starts with finding the right Forex broker. When it comes to choosing a Forex broker, it can often feel like an overwhelming choice, with countless options available.
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Here are the top criteria you should consider when making your choice:. It might surprise you to learn that the Forex market doesn't have a central regulator. However, that doesn't mean you should choose a broker without considering the question of regulation. Instead, we recommend choosing a broker that is regulated by the financial regulator in your area. A good broker will usually be proud of their licensing and will use this as a selling point.
The benefit of choosing a regulated broker is that this will ensure that you, as a trader, are protected to the full extent of the law in your country. For instance, in the European Securities and Markets Authority ESMA introduced a range of legislation protecting retail trading clients, which all European Forex brokers must abide by.
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This legislation includes limits on available leverage, volatility protection, negative balance protection and more. If you would like to learn more about the ESMA legislation, we have several special webinars on the topic that you can access via the following links:. It's also important to consider the security of your funds.
With this in mind, we recommend choosing a broker that segregates their clients' funds from their own, which ensures that the broker cannot use your deposits for any of their own financial activities. It also ensures that your funds will be available for withdrawal upon your request. Finally, check whether the broker offers a financial services compensation scheme.
This defines the amounts of funds that will be compensated to you in the extreme case that your broker or its bank is going bankrupt. The service of the broker you choose, and the platform they offer, is essential in ensuring that you achieve the best trading results. If you were trading on a system that was slow and regularly crashed, for example, you might not be able to enter or exit a trade at the price you want.
Instead, it's important to look for a broker that offers high levels of liquidity, low spreads and the ability to execute orders at the price you want or as close to this as possible. Another element of the service provided is the margin requirements and level of leverage available. While there is no need to choose the highest level of available leverage when you start trading Forex, simply knowing that a broker offers the highest level of leverage approved by their regulator means that, as your experience grows, you can start to increase your leverage according to your preferences.
As Forex trading can be an income-generating activity, it's important to treat your trading as a business activity - one where you consider both how to maximise your income, how to minimise your costs, and how to minimise the risks. With this in mind, make sure to consider the costs of trading with any Forex broker, before you ultimately select one. While searching for the cheapest Forex broker, it really comes down to a combination of spreads, execution quality, commission, and the minimum deposit.
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These should be the last points you consider when opening a long-term trading account. The best Forex broker for beginners depends on elements like the trading system, the quote feed, instrument portfolios, execution models, and the leverage offered. When choosing a Forex broker, obviously you will want to make sure they have access to a wide range of currency pairs, including majors, minors and exotics. But what about other financial instruments? If you are considering trading with a Forex and CFD broker, it's a good idea to look into the other instruments they offer as well.
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This will ensure that if you decide to trade stocks, indices, ETFs , commodities, cryptocurrencies and other instruments in the future, you won't need to find a new broker to do so. Admiral Markets, for example, provides traders with access to over 7, financial instruments, allowing you to create a diversified trading and investment strategy from a single platform. The quality of the trading tools a Forex broker offers can make a big difference to your trading experience.
In most cases, the available tools will depend on the trading platform or platforms being used. It's important to consider whether a Forex broker and their trading platform will suit your trading style.
For example, you might be interested in following a Forex scalping strategy , which involves making a high volume of small profits on small currency movements. In this case, you would need to ensure that any potential broker has minimum distance between the market price and your stop-loss and take-profit. Or, if you are new to Forex trading, you might not be comfortable using the maximum leverage the broker offers. With this in mind, check whether the broker allows nominal leverage - where you can choose the amount of leverage you use in your trading, anywhere up to the maximum limit.
Finally, consider whether the Forex broker offers education and support. Ongoing education is essential to a Forex trader's development and achieving the best results.