Trading has always been a part of human activities. Thus, you shouldn’t be surprised about all the things which can be traded nowadays. In recent times, we have witnessed the rise of one more market open for trade. This is the market of foreign exchanges, known as Forex.
This foreign exchange market is basically a network which allows individuals, companies and entire countries to trade with multiple currencies. This might make you think that it is something extremely complicated.
On the contrary, this is very similar to trades on the stock market. Many people are unaware that they perform Forex trading more regularly than stocks trading. After all, if you’re from the UK and wish to visit Japan, you’ll need to exchange your GBP into JPY. You have practically performed your first foreign exchange with success.
However, people nowadays are trying to make money with Forex. Basically, this is done just the same as the traditional process of exchange. Nonetheless, when you sell your present currency for a different one, you are hoping for a specific change in market. The best traders are sometimes able to predict market movements and know when to buy and sell specific currencies. That way they can spend less and sell them for more and make a profit with little or no effort.
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- List of Forex Brokers accepting traders from the USA:
- Frequently Asked Questions
- Can I practice Forex trading before actually doing it?
- Is Forex trading legal?
- What are the main factors which influence a currency’s “market price”?
- What does ‘leverage’ mean?
- What is a Pip?
- What is a Spread?
- What are the main moves in this market?
- How much money would I need as starting capital?
- Is there a specific strategy for making money in Forex?
- Does the Forex market have specific working hours?
- Legal Regulatory Bodies and Their Functions
- Separate Authority per Country
Yes, of course. There are numerous websites which offer such services, and they tend to include demo versions in order to encourage people to take the first step. There is nothing to worry about, as these demo versions are made to look exactly like the real deal, just without the risk of losing your money. Once you have had enough practice on the trial version, you should be able to try trading by yourself.
Trading with Forex is a completely legitimate activity. Remember that you do it every time you need to travel abroad and there has never been any specific legal restriction. However, it is a bit different for those who want to profit from currency exchanges. Hence, Forex trading is still a dream for many underdeveloped countries which keep their strict anti-money laundering laws.
Other ones, like the USA, Great Britain, Japan, Switzerland, Hong Kong, Australia and several others actively allow their citizens to practice this activity.
Any currency on the Forex market largely depends on the global situation, as well as the state and well-being of its country. Some specific factors are considered to be the most influential. These include financial matters like inflation announcements, interest rates, as well as the country’s latest GDP reports and production figures. Forex prices are further influenced by natural disasters and currency interventions, as well as the political and economical stability and monetary policy.
Leverage is a nice way to name the money you don’t actually have, but can use when trading. Basically, aside from the money which you use for trading, your broker can provide you with an additional amount known as leverage. It is said to greatly increase the purchasing power of traders, as some brokers offer leverage rates at, let’s say 400:1, which means that with your $100, you actually get $40.000 which you can use to trade.
Pip stands for ‘percentage in points’ and marks the unit of change for a specific currency’s exchange rate. Generally speaking, these currencies tend to be priced up to the fourth decimal, and the pip is one unit of that fourth point.
The spread signifies the difference between the buying and the selling price. It is denoted in pips.
All you need to do when trading in Forex is follow the price movement. According to this, there are two main moves which you can make – “go long” or “short”. If you plan to go long, you are actually buying an asset which has a lower price, but you think that it is going to rise. If you go short, you are expected to sell the asset because you believe that its prices will fall. That way you can sell it for more money and buy it back later when its price is low. Keeping the currencies at various prices helps traders manipulate with their overall value.
If you want to take up Forex trading, there is no lower or upper limit to your deposit on your account. That means that you can choose to use just one dollar or one million. For practical purposes, brokers have set up a depositing limit from $100 up to $10.000 in order to help guide the new traders.
When it comes to Forex trading, there is no one specific strategy that can get you instant money. However, there are various moves and strategies which are recommendable and usually profitable. Many traders use the strategy which involves risking smaller investments in order to build up your account and gain experience before trading with more valuable currencies. Once you understand the mechanics of this type of trading, you can use your knowledge to combine various strategies to your advantage.
Working hours are a tricky topic, as this service is available all over the world and covers most of the existing time zones. Even though there is no activity during certain periods of time during the day or the night, most platforms still need to be active. Some brokers may have different requirements. These usually shut down as a result of proper risk management. You need to keep in mind that not all assets can be traded at the same time. Some even have specific hours.
Most brokers also have specific working hours and only allow trade during the work days, excluding weekends.
Countries which allow their citizens to perform Forex trades usually have characteristic laws and legislative bodies in order to keep everything under control. Even though all these organizations do their work a bit differently, they all have to maintain certain procedures when providing licenses and regulating trading activities.
First of all, they test, analyze and observe the functions of brokers before providing them with the license which allows platforms to conduct Forex trade. The brokers which have been licensed need to accept certain rules and laws in order to maintain control. These laws are mainly in relation to the investment capital. Plus, they completely ban any type of fraud and set a high penalty for this action.
Ultimately, in order to maintain constant control over the brokers’ work, these legislative bodies make them keep regular records of all activities and impose reporting obligations.
In addition to this, legislative bodies help maintain market stability by regulating some unique areas, such as the matter with minor currencies. In order to prevent brokers and traders from taking advantage of them, these authorities tend to limit the leverage for such currencies. In this regard, they often impose leverage limits for all currencies in general.
Regulatory bodies for Forex brokers exist in almost every country which has legalized this activity. For the USA, it is the National Futures Association (NFA), while Australia has the general authority called Australian Securities and Investments Commission (ASIC), as well as the one for the EU located in Cyprus – Cyprus Securities and Exchange Commission (CySEC).
Such legislative bodies of great magnitude regulate all types of asset trading which belong to Forex currency exchange estimates. Russia, on the other hand, has its own specific authority called Federal Financial Market Service (FFMS), while Switzerland functions under the jurisdiction of the Swiss Federal Banking Commission (SFBC). Other such legislations exist in remaining parts of the world, such as South Africa and the UK.
The main thing to remember is that these authorities primarily help the traders, despite popular beliefs. Their factual purpose of regulating these activities is to prevent brokers from misusing their power in order to profit. If something like that happens, traders are bound to go bankrupt because of the brokers’ sky-high leverage limits. This will simply put traders into greater debt instead of helping them get out of it.