If you’ve decided to trade Forex, you’re about to access one of the most liquid and lucrative financial markets in the world.
In fact, an estimated $5.3 trillion is traded through the Forex market every single day, as investors look to achieve marginal returns without being forced to assume ownership of an underlying financial asset. Before you start trading Forex, however, you’ll need to ensure that you have built a solid foundation of knowledge. Here are three crucial things that you’ll need to know as an aspiring trader.
1. There are numerous types of online broker
In order to execute trades, you need to partner with an online brokerage platform. The issue is that there are many different types of broker service available, each of which offer alternative benefits and pitfalls depending on your outlook.
For beginners, the best option is to trade through an online ECN broker such as ATC Brokers. This type of service is extremely transparent and easy to understand, as brokers generate profit by charging a fixed transaction commission fee rather than competing directly against your trades.
This creates a far greater sense of collaboration, as ECN brokers profit directly from the success of their clients.
2. Demo accounts offer the ideal transition to real-time trading
Online brokerage platforms are relatively diverse in their nature, as they offer a large number of additional services and features.
One of these is the trusty demo account, which allows novice traders to access simulated market conditions in real-time. Your demo account will replicate corporeal Forex trading in almost every single way, with the only difference being that you execute orders using fake currency. As a result, you can begin to apply everything that you’ve learned in a practical setting while minimising your risk.
You can use a typical demo account for a period of between three to six months, and you should use this type to build practical experience and refine your unique trading strategies.
3. Liquidity and margins drive the Forex market
While the volatility of the Forex market may well be considered as a bad thing, this in fact can be leveraged to your advantage as a trader.
This is thanks largely to the level of liquidity that characterises the Forex market, which in turn means that currencies can be bought and sold quickly and in high volume without affecting the price of the asset. This is why day trading can be such a lucrative practice in the Forex market, and it’s certainly something to bear in mind when defining your strategy.
It’s also important to remember that currency is a derivative, and one that delivers marginal gains and losses. More specifically, you’ll often earn or loss more than your original investment, so it’s crucial that you manage your capital sensibly and apply viable risk-management measures whenever possible.