For beginners, forex might seem farfetched, but this article will break make it as simple as possible. With forex, players can begin with simple investment strategies and then as you get more experienced and learn more strategies, you can take on more risks for more potential rewards. Hence, forex investments are great for a new investor.
FOREX stands for FOReign EXchange, which is exchanging two different currencies. Most countries use fiat currencies, that is, they have a floating value in the market and is not anchored to the value of any other commodity. Thus, the currencies are independently valuable by themselves and are not tied to other asset values. The value of a currency is determined by the simple economic rule of supply and demand. If the government prints more money or encourages banks to lend more, the value of the currency falls – also known as inflation. If the supply is reduced or if the goods and services produced in the local economy are in high demand abroad, it will lead to an increase in demand, thereby increasing the value of the currency.
Of course, this is a very simplistic explanation and the value depends on complex economic, political and geo-political factors. Though it is not an absolute necessity to understand it completely, a basic level of understanding helps. Depending on the value of two currencies, the market determines the relative value or the exchange rate between the two currencies. As the value of the currencies fluctuates, so does this exchange rate. This change of exchange rate is called volatility. If there is no volatility, there is minimal risk in the Forex market at that present time.
The most common trading pairs are the popular currencies such as USD/EUR, though you can also trade dozens of other currencies on most forex markets. The simplest form of trading is buying low and selling high. You will also need to account for brokerage fees. There are also other options such as short sale and futures contract which can be used to make a profit even if the exchange rate is falling.
Your success will depend on your trading technique. Be advised that it is not uncommon to lose some money, especially at the beginning, since after all, you are taking a risk. It is not necessary to come up with a sophisticated trading technique outright. You can use simple ones such as going with the trend. If you see the exchange rate of a certain pair rising for a while, you can expect it to continue for at least a while. Long-term investments can also reduce the need to apply complex strategies.
In order to begin forex trading, you will need to register with a forex market or trading platform. There are many new classes of forex trading platforms such as IQ Option which allow you to trade derivatives of forex pairs.