The basis of Forex Trading

Trading forex is mastering the art of short term speculation through buying and selling different currencies against others. In ForexSQ we care about traders’ education, therefore we remind that forex trading is far more risky than you can imagine when you first come to it and could imply large losses for the newbie. Why not? All of the publicity surrounding FX trading suggests that it's an easy way to double, triple your money from the comfort of your home and with little effort.

But that, of course, is not true. Indeed, anyone can become a profitable forex trader, if he/she pays the price: study. To become a doctor, a lawyer, an engineer, or any kind of profession by the case, you need to study for years. Why would you think that you don't have to do the same to become a successful trader?

Anyway, forex trading is developed through the foreign exchange market, which has no physical place. It´s the result of worldwide transactions performed by banks, central banks and commercial business, which means is active 24 hours a day, and pretty much 7 days a week. If you are new to FX, you may hear that is usually called an OTC, over-the-counter market, which means that trading  is done directly between two parties, without any supervision of an exchange, although that is not completely true. To trade forex, you need a brokerage firm, usually called just "broker," that grant you access to this worldwide net.

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Retail forex brokers provide trades with access to this market through a trading platform that allows them to buy or sell a certain currency against another. In fact, these days, brokers offer much more than just currencies, adding commodities, indexes, and other assets to their platforms, to provide their clients with more investment opportunities. They charge a small commission for their service, through the spread between the selling and buying prices. There are plenty of brokerage firms, with different degrees of reliability, although is good to know that as time goes by, there are less scammers around and that many countries have regulated the forex activity, to protect broker's customers.

Among one of the major advantages with forex trading, is the use of leverage. The use of leverage implies the possibility of having a significant increase in returns when taking a certain investment position, but of course, the losses can also be as large. In simple words, it means that you can buy certain assets, by using less money that what it's worth. For example, if a broker provides a 50:1 leverage, also called a 2% margin requirement, it means that $2,000 of equity is required to purchase an order worth $100,000.

The election of the correct broker is as relevant as educating yourself before jumping into this activity. Brokers offer not only different assets, but also different leverages, and have different minimum capital requirements. So basically, when you choose a certain broker, the firm creates a segregate account at your name within their company, where you have to deposit your money to trade. Some allow to open accounts with just $500.00, while most required $10,000.00 to open an account. 

 It could be very lucrative, but you should not forget this is speculation, and the risk correlated with it is quite important. But again, performing an open heart surgery is not what you could call easy, even for an experienced surgeon. As with any profession, practice does the master.