It is not news to anyone that the growth in the number of people willing to become involved in Forex is becoming more and more evident every day. While this growth cannot always be attributed directly to success stories, it must be said that there are many examples of traders who have made a lot of money using little else but their abilities and some indicators.
However, to join these ranks, you will need to learn the basics or brush up on them, especially technical analysis.
For many traders, trading is all about luck – when they lose money, it’s because they were unlucky. When traders make money, they are lucky. While luck plays a role in trading (you can’t win every time), it is also a fact that using the right tools and strategies will give you an edge over other traders.
In this article, let’s talk about what Forex trading is, the different types of traders out there, some simple tips on how to improve your chances of being profitable at Forex, and lastly, how volatility affects the market.
Forex Trading – a brief overview
The Forex market is one of the most traded markets globally, with millions of transactions taking place every day. And while it was initially just for major currencies (USD, GBP etc.), nowadays, you can trade pretty much anything from indices to metals to agricultural products if you so desire.
The core principle behind Forex is quite simple – a trader will buy a currency pair in the hopes that he will make money when he sells it back to the market at a future point in time. There is no actual form of centralization or regulation – any person can be a trader by simply creating an account with many online Forex brokers and depositing money into his account.
The reason for this high flexibility lies within the nature of currencies – they are used worldwide as a means of exchange, and since there is no physical form that they take, their value is determined purely on supply and demand. In other words, there’s little to stop you from buying/selling anything, provided you have enough cash on hand.
The price itself consists of two parts:
- The “bid” – this is the price at which you can sell (you are buying currency A and selling currency B)
- The “offer” – this is the price at which you can buy (you are buying currency B and selling currency A).
These two prices make up what Forex is called “the spread”. This premium represents how much profit the broker is making per transaction. For example, if the bid/offer for GBP/USD is 1.60/1.61, it means that given 100,000 units of GBP, I can either buy USD 161,100 or sell GBP 100,000 with an additional USD 600 in my pocket (hence making $600 in profit). Therefore, the quoted price shows how much you will gain or lose if you decide to enter the trade.
Who is a trader?
As mentioned above, anyone can be a Forex trader provided he has enough cash to put down initial funds (called margin) and an account with one of many online brokers (some of them are even offered for free). However, that doesn’t mean that everyone can make money at Forex. Most people lose out because they lack proper knowledge or use unsuitable tools/methods.
There are two types of traders
Retail traders (those who trade part-time) and professional traders (those who do it full time). If you are a professional trader, I’m sure you already know what you’re doing, and this article won’t be of much use to you (besides, it’s not like I can teach anyone anything about trading).
Forex is all about luck.
Traders come into the market with little knowledge, lack proper tools/methodologies, think that simply buying/selling at the “right” time will make them rich overnight; these are often the ones who lose money. For others, however, Forex is more than just a game – it’s an opportunity for financial independence, an alternative route to achieving goals they otherwise would find difficult to accomplish.