Forex trading could be a great option for students looking for a way to pay for their education or earn some extra cash for their extracurricular activities. However, you may not know what it is? Compared to traditional part-time jobs, it is much more flexible and if done with good preparation, investing in the foreign exchange market could be way more lucrative.
Before starting to trade actively and with real money on this exciting and risky market, however, students need to learn the basics of Forex and a great source of information would be the articles provided by Trading Pedia. There are also several important steps they need to follow to avoid losing their entire investment. With good knowledge, a lot of patience, and even greater adventurous spirit, students can not only learn how to trade Forex but also how to be extremely successful in it.
Learn What Forex Is
Forex stands for the foreign exchange, the largest and most liquid market in the world with an average daily volume of more than $5 trillion. It is a decentralized market where traders buy and sell different currencies - this means that transactions do not need a centralized exchange such as the New York Stock Exchange or the NASDAQ. Instead, traders buy and sell from their computers, using special trading software and via intermediaries, known as Forex brokers. These are licensed, professional firms that can give you access to the world markets.
Just like every other market place, the Forex market is subject to demand and supply - to be a successful trader, you need to learn how to “predict” market trends. In other words, you need to learn how to identify key economic events on a global scale, to stay up-to-date with the news and the latest developments. Another important thing to know about Forex is that currencies are always traded in pairs - for example, the EUR/USD pair and its quote tell traders how many US dollars are needed to buy a Euro. What you make your profit from is the difference in the price you have paid to buy a certain currency and the price you receive when you sell it.
There are many other key terms and concepts every beginner needs to understand before they start to trade on the Forex market. The most important thing is to keep reading, keep educating yourself so that you can become a confident novice and a successful trader one day.
Why Is the Forex Market So Attractive?
Students who decide to trade on the Forex market should be aware that this type of trading involves a great level of risk. However, it is also a much more attractive alternative to other markets, especially for young people who are eager to learn quickly, make short-term deals, and take advantage of the leverage offered by brokers. So, why is Forex better than the other markets?
First of all, it is a low-cost type of trading where you can register a trading account on the website of the brokerage you have chosen for free. Using the trading software platforms available on the site is also free of charge. Moreover, you do not need to pay brokers a commission - they make their money on the spread in every trade. Known as the bid/ask spread, this is simply the difference between the price offered by the buyer and the price asked by the seller.
Second, this market offers a lot of opportunities to make a profit even for those who are still making their first steps in trading. Most brokers give their clients exposure to at least 50 currency pairs, so along with the major currencies such as USD, EUR, GBP, and JPY, you can trade various national currencies or even some more exotic ones such as New Zealand dollars (NZD).
Choose Your Broker Well
Once you know how the Forex market works, you should take your time and do good research into the various brokers that can be found online. It must be a legitimate company, with substantial experience in the field, as well as an overall good reputation among traders and competitors. To be reliable, brokers need to be properly licensed, to offer a wide range of financial instruments, safe and fast payment methods, and low spreads and trading costs.
The company should also provide its clients with at least two or three different software options since it is the software platform that facilitates the trading itself. Popular options are MetaTrader 4, NinjaTrader, and Tradiview. The larger platforms also provide great analysis, various charts, statistics, trends, etc. Even more importantly, a good brokerage site always offers multiple sources of information and educational tools for beginners. This could include video tutorials, blog articles, or complete trading guides. Last, but not least, most Forex brokers allow opening a demo account - this is extremely useful for those who want to learn how to trade and how to read analysis without actual financial risk.
Know What CFDs Are
The world of Forex trading could be really overwhelming for novices. It is filled with tons of terminology and new and strange concepts. One of the most important concepts is the trading of CFDs or Contracts for Difference. These are really exciting financial products that are suitable for beginner traders because they allow completing transactions at only a fraction of its actual value. If this sounds too vague, read on.
With a Contract for Difference or CFD, the buyer and seller enter into an agreement for the difference between the current price of an asset and its price when the contract expires. When you trade these types of contracts, you speculate on the rising or falling prices of currencies or other assets without buying or selling the physical asset. In other words, you do not need to own something in order to sell its CFD, which means you only make money from the changes in its market value.
Use Leverage But Beware of It
One of the greatest advantages of trading on the Forex market is that you can make the most of your limited budget by leveraging it. Leverage is another thrilling concept in finance and trading, which refers to a specific amount of money you borrow from your broker. This borrowed capital allows you to open a trade with significantly less money than the cost of the underlying asset. Brokers give the clients leverage as a ratio of the trader’s funds.
To give an example, we can start with a budget of $100. We want to buy, let’s say, a car but unfortunately, it costs $5,000. But we go to the Forex broker and we receive leverage of 100:1, which means we can buy something for $10,000 (100x$100). So, now, we can buy not one but two cars (we will not actually own them, however). When we sell them, hopefully at a higher price, we will make a profit. This is how leverage basically works - it increases the potential profits from a trade.
At the same time, it increases the potential losses - imagine the price of the car depreciate and we sell it not for $5,000 or $5,500 but for $4,300. If we sell both cars at this price, we would lose $1,400, although our initial investment was only $100.
Hopefully, with this guide, you have a greater understanding of the Forex Trading and your future with Forex!
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