Introduction to Forex trading

Foreign currency exchange or forex trading has some significant advantages over other investment methods. However many investors stay out of forex trading simply because they lack the necessary knowledge.

Some misconception and myths also keep them away from foreign exchange trading.People think it is too technical and complex and requires extensive knowledge to trade in forex, which is not correct.

But like any other profession, you need to have the love and patience to master the skills.

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Till few decades back, foreign exchange market was restricted to very large investors such as national banks and corporations. In the 1980s, the market allowed smaller investors to participate in forex trading using margin accounts.

It is the primary reason that forex trading became so popular, as with margins of 1:100, you can control $100,000 with investing $1000.

Getting started in forex trading is not difficult but it is not simple either. Therefore, it is very important for someone interested in forex trading to learn as much as possible about the market.

The first step would be to choose a broker to make trades on the exchange. The broker should be reputable and regulated. This will help you in protecting yourself from frauds.

For opening a forex account, you would need to fill out some applications, and also would need to sign a margin agreement. For an automated forex trading platform you can open a demo account to get the feel of the market.

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Most of the brokers, conventional or online, will provide several different account types. Usually there will be a mini account that you can open with as little as $200.

The standard account usually takes an investment of $1000 or more. The actual margin rate varies by type of account, i.e., higher the level of accounts greater leverage will be offered.

Each broker will have their unique system for making trades and gathering information. Most brokers provide real time quotes, news feed, technical analyses and charts, profit and loss analyses, forex signals, etc.

Brokers do not charge commission on the trades, but make their money on the spread between the bid and ask price.

The prime advantages of Forex trading are:

Liquidity: Because of the size of the forex market, investments are extremely liquid. High volume of daily transactions ensures there is always a buyer or a seller for any currency. You can earn profit both for rising and falling markets.

Accessibility: The global market is open for 24 hours a day, 5 1/2 days a week, and trades can be done on the internet from your home or office.

Open Market: The market is non monopolistic and open where the exchange rate fluctuations are usually caused by changes in global economies.

No commission: Brokers earn their profit by setting the spread, which is the difference between ask and bid price.

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