Foreign currency exchange – or Forex – is a complex and intricate process, with even professional traders struggling to understand it completely. But with over £4 trillion being traded every day in the Forex market, it can be a highly lucrative and profitable business.
While Forex trading is a popular route for a number of people trying to make money online, diving straight in can be daunting. Luckily, we’re here to help with our beginner’s guide to Forex. Read on to discover exactly what Forex is, how you can make money trading currency and the essentials all traders need to know.
First things first, in order to make money online, you must understand the basics. Essentially, Forex is the process of converting one currency into another. Generally, currency is converted for ecommerce, trading and tourism purposes, but there are a number of reasons that people would exchange currency.
The Forex global trading market is the largest in the world, based on trading volume and is open 24 hours a day, 7 days a week. So, wherever in the world you are, whatever time of day it is, you can stay on top of your currency exchanges.
When starting to trade, you may find yourself slightly overwhelmed by some of the jargon. It may be beneficial to take a look at a glossary beforehand to familiarise yourself with the language used.
Boosting your income
Once you understand the basics of trading, you’ll need to learn how to predict and understand trends in order to trade effectively. By estimating when currency rates will dip or rise, you can figure out the best times to spend your money and increase your overall return.
Of course, the amount of money you can make through Forex trading is dependent on a number of factors. Firstly, how much money you’re willing to trade will affect the potential return. The more money you put in, the more you can get out. Trading in any form has no guaranteed results and so each trade is a risk. The larger your account, the less risk there is on smaller trades.
So, for instance, if you have £1000 in your account, a £10 trade would be only a 1% risk, whereas £100 would increase to 10%. While there is no guarantee when it comes to trading, you should aim for a win rate of at least 50%. That means you should be winning at least half of your trades, with your wins ideally being higher reward trades to counteract any losses.
Forex is different to almost all other forms of trading as it is highly fast-paced. You need to be constantly up-to-date with the latest changes in currency, such as how the value of the Pound is changing. Even those with years of trading experience may struggle to keep up with the constant highs and lows. Because of this, you must be dedicated and willing to put in the time if you want to be successful in Forex trading, so it may not suit everyone.
That said, due to the fast-paced nature of Forex, you can make large amounts of money fairly quickly with the right trading discipline, as there is always demand from another buyer. So, you’ll never be left with a lot of currency that you cannot get rid of. The market is also open 24 hours a day and so you can trade around the clock, making it an easy entry into the trading world.