At a time when currency trading is booming, Forex seems to be at the head of the best foreign exchange markets. Indeed, more and more investors are using online brokers to sell and buy currencies. Forex is therefore one of the easiest markets to trade. It is even a great historic alternative to cryptocurrency trading (bitcoins).
Learn more about Forex: what is it?
If you are just starting out in the Forex trading, it is important that you understand the basis of this currency market and how it works. Forex is a contraction of the words Foreign and Exchange. It is a foreign exchange market where investors can buy and sell currency pairs. In other words, it's a currency market.
Investors who enter Forex trading are called Forex traders. They can be private traders (small investors) or professionals (institutional investors, banks, companies, etc.). Here is an example of French-speaking traderTo be able to trade currency pairs, retail traders go through online brokers called " Forex brokers ". These brokers specializing in currencies will negotiate the market for them.
Where does Forex come from?
Currency exchange is a concept that has been around for a long time. Moreover, many trading systems like the Bretton Woods system and the gold standard existed before Forex. The latter was created around 1971, following the economic conditions of the time which put an end to the Bretton Woods agreement. From there, the exchange rate of the currencies of several nations was determined by the offers and demands on Forex.
How does it work?
Any Forex trader who wants to get into the forex market should know how it works and the basic terms. The currency pair is the key element that participates in currency trading. It consists of the base currency and the counter currency (for example EUR / USD).
The principle of trading on Forex is quite simple to understand. To exchange currencies, the trader buys a currency pair when the quote goes up and then sells it when it goes down. For information, the Forex quote is the valuation of the base currency against the counterparty.
Traders therefore do not buy and sell physical currency, but currencies. This foreign exchange transaction takes place in foreign exchange transactions or online through trading platforms. There are several currency pairs traded on Forex. The best known are the US dollar, the British pound, the euro, the Japanese yen and the Swiss franc.
Other groups of minor currencies like the Canadian dollar and the Australian dollar are also traded on Forex. However, they represent less than 10% of foreign exchange transactions, which is not really advantageous for traders.
Use a broker
A broker is quite simply a broker. It is an intermediary who matches the offer of a seller and the demand of a buyer in exchange for a commission. It therefore facilitates the transaction between the seller and the buyer.
In the field of trading, the Forex brokers is an individual or a company that offers retail traders access to the financial markets. It uses a trading account to trade the buy and sell orders of currencies placed by clients. Some sites compare brokers on different criteria, so you can read a Vantage Fx reviews
Forex: a good alternative to bitcoins?
Considerable gains for traders
Compared to other financial markets, especially bitcoin, Forex has significant advantages for retail traders and professionals. It is indeed a free marketbecause it does not charge clearing fees or brokerage fees. Forex also has lower transaction costs compared to bitcoin (less than 0,1%). However, you should know that it is not possible to win every time and that taking positions with rapid systematic profit is an urban myth. A 10% return is already excellent and the majority of professionals expect an average monthly return ranging from 1 to 10%, with a few peaks at 20%, or even 40% in exceptional cases.
Also be aware that Forex is a market open 24 hours a day (except weekends), which allows you to trade at any time and at the times that suit you. The leverage effect offered by brokers also gives you the opportunity to amplify your transactions and multiply your earnings.
What are the risks ?
In the world of trading, the risks of loss can be enormous. You should know that to obtain the best returns, we must play on the appreciation and depreciation of the value of currencies. Indeed, the exchange rate of currencies is in permanent fluctuation, which makes it sometimes risky to carry out transactions. Moreover, to make money by investing in Forex, there is no question of opening positions from all sides. On the contrary, you have to trade less, but more efficiently, which requires you to be well informed about the world of Forex trading.