What is FX Trading – A Beginner’s Guide

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What is FX Trading?

FX Trading, also known as Forex or foreign exchange trading, is the buying or selling of one currency in exchange for another. The currencies of the majority of the world’s large economies are not set but rather follow a free-floating exchange rate, determined by market forces of supply and demand. So, it is the ongoing trading activity of the FX markets that sets these exchange rates. Put simply, the aim of the investor is to profit from price movements in the currency markets.

Financial market information and data analyzing.

And those markets are vast – according to a 2019 report from the Bank of International Settlements (1) (the oldest global financial institution), the daily average trading volume in April 2019 was $6 trillion. It is easily the largest market in the world and has grown rapidly in the last 20 years – daily average trading volumes in 2001 were $1.2 trillion! People across the globe are flocking to get involved in the online currency trading world and get their slice of the action.

It is a great way to trade both for the experienced operator and for the beginner, possessing some advantages over the more standard stock market investing.

Access is simple

Anyone can do it – you just need to sign up for an account with an FCA (Financial Conduct Authority) licensed broker. There are many of them and they usually have some sort of incentive scheme, and you don’t need to lay down a big deposit to get started – many Forex brokers require only £100 as a minimum amount to invest, and some go even lower. It is also easy for the potential investor to look at online reviews to ensure the broker is reputable and has good customer support resources. Platforms should allow you to analyse prices, take positions and have a variety of trading tools and live news feeds. A desktop computer or laptop is not required these days, all the best brokers use mobile apps allowing you to analyse trends, follow courses, chat online with other traders and of course, trade! You can trade from wherever you are, whenever you want.

Strong Regulation

FX trading in the UK is regulated by the FCA, and this independent organisation ensures that UK brokers are licensed and observe firm guidelines, so traders using their services can be confident that they operate in a transparent and fair manner.

Great flexibility

The market is open 24 hours a day except for weekends; rolling from 10pm GMT on Sunday in Sydney until 10pm GMT on Friday in New York – so it is a great option for a budding investor who still needs to work a regular job, or perhaps is just looking for a hobby.

High Liquidity

It is the world’s most liquid market, meaning there are many buyers and sellers looking to make a trade at any given time, all over the globe. This means that currencies can be traded with relatively small effects on value, particularly when dealing with major currency pairs like GBP/USD. With transaction costs being low, investors can speculate on relatively small price movements as well.

Volatility

The movements in currency values can be very volatile; the sheer amount of trades every day equates to billions of dollars changing hands each minute. Political and economic changes within individual countries, and events like natural disasters can also swing the markets. This entails there are opportunities to make substantial profits – although beware – these movements can work against you as well as for you, so there is a high level of risk. Risk can be lessened by trading the major currency pairs which tend to be less volatile.

Simplicity

The stock market is bursting with thousands of investment opportunities, and it can often be difficult for a beginner to navigate their way through all the possibilities. FX options are far narrower in scope, and while most brokers will offer dozens of currency pairings, initially the investor can concentrate on the relatively small amount of high-quality major currency pairings.

Free Demo Accounts

Virtually all FX brokers offer a free virtual trading account which will contain virtual trading capital. This is a fantastic benefit as it allows beginners to learn about how FX trading works in real time and gain invaluable experience with no financial risk.

Pros and Cons

While there are many benefits to FX trading, as with all investment opportunities, there is an inherent level of risk. It is not something to be entered into lightly and budding traders should familiarise themselves with the potential cons and make sure they completely understand what they are trading and all the many technical terms. Liberal use of the free demo accounts is vital both to learn the ropes and to develop and test strategies. The individual concerned must also have realistic expectations – FX trading is not a get-rich-quick scheme, but a long-term investment. At the outset, do the research, choose the right broker, and start simply and slowly.

  1. https://www.bis.org/statistics/rpfx19.htm
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What is FX Trading – A Beginner’s Guide
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FX Trading, also known as Forex or foreign exchange trading, is the buying or selling of one currency in exchange for another.
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