Forex is a wonderful trade which can also be done by beginners. It is popularly known as foreign exchange trade and the asset which is used for trading are the different currencies used worldwide. There are several small and big traders in the field and also small families or individuals who are exchanging currency for a foreign tour can be referred to as doing a forex trade. Forex is just changing one country’s currency into another one for any sort of reason.
However, some individuals take it up as a business and gain profit by the difference in amount between the selling and purchase price of a currency. This business can be done globally from any location and this is a decentralized business which is not governed by any specific country. Although the central banks of each of the country do exercise some level of control to this trade.
The forex trade began in 1971 after the accord which happened at the Bretton Woods. After this occurrence, the currencies were allowed to float freely and the values of each of the currency varied against the other one which gave birth to forex trade. Mostly banks and hedge funds are the big players in this market. But this is also done by small investors, multi-national companies and also by individuals all around the world. Bolsa principiantes needs to have a lot of research and study about the market before beginning with live trading.
Forex as a hedge.
Most of the multi-national companies or companies involved in the import and export business of several goods face a lot of insecurity and even losses due to variations in the rates of currencies. These enterprises have got the support of forex hedging to a great extent. The process of hedging involves buying or selling the currency at a fixed price at a given time from the market. This currency can then be used to import or export goods or make payment to employees in case of multi-national companies.
A trader buys the currency when a good rate is offered in the market and locks the rate with the bank. So if the transaction happens even in future then also the bank gives the agreed conversion rate even if the rate has increased. Same happens in case of selling the foreign currency. Although there is a risk of unfavorable market conditions, in this case, an expert can judge when he should buy or sell based on the past experiences and analysis.
Forex as Speculation.
There is a continuous variation in the currency exchange rates due to several political and economic conditions as well as the supply and demand mechanics. An expert trader can bet this opportunity and buy or sell the correct currency at the correct time and make the huge profit. This analysis is termed as Speculation in the Forex industry.
Pros and Cons involved in trading Forex.
Bolsa principiantes covers up this main topic to highlight the pros and cons of Forex trading. Without knowing the details of the pros and cons if one starts with this trading then one can incur huge losses in the near future. So it is important to know this for beginners who intend to trade currencies.
Pros and cons are as follows:
1. The market is global and huge and there is a high liquidity in the market which gives a high earning potential. However, if the investment is not done by proper analysis then an equally big loss can be incurred. The market is easy to make an entry or an exit from any position and by using any of the major currencies used worldwide. The position of any currency may change at any point in time within a fraction of a second.
2. The liquidity offered by the market allows the banks to offer high leverage to the traders. Due to this leverage, the traders can control a larger position with the relatively lesser amount of money. The most common ratio of leverage offered in forex trading is 100:1. But for a beginner, he must clearly understand the terms leverage and liquidity in the market else he may end up losing his money. Leverage must be used wisely to earn a profit and benefit out of your trader’s account.
3. Another major advantage of the forex market is that it can be traded 24 X 7. This enables a newbie to try out trading along with his normal job or other business. The day starts with the day in Australia and ends with the night in NewYork. Major centers for this trading are located in Sydney, London, HongKong, New York, etc.
4. Currency trade is a macroeconomic and global decentralized business and one should focus on the bigger picture by understanding the economy of several countries of the world. Also, you must have an understanding of the interconnectivity and the relations between different countries of the world before choosing currencies for exchange. Before choosing a broker for trading you must study its financial strengths, market opportunities, management skills and trading knowledge.
Bolsa principiantes is a tough trade, but it can be made easy with the help of a demo account. A demo account is a simulation of the live trading and helps the beginners to practice trading without making use of live currency. This means you can understand the mechanism and terms and conditions of the forex trade without risking your hard earned money. Signing up for the websites which provide demo account is completely free and you can try out the account on different websites simultaneously. However, one must analyze the reviews and reputation of the broker’s website before making an account on it. There are several limitations to a demo account for forex trading but it is a convenient and handy tool to understand forex for beginners. Make sure to do a proper research and study as well as practice before entering into live trading and risking your money.