The forex market has been there for a long time now, and it stands strong as the biggest trading market in the world. The trading volume and number of traders were always high for the currency market. However, there has been a rapid Read More
There are a lot of fundamental and technical aspects that need to be understood before getting into forex trading. But to describe forex trading in simple terms, you will be engaging in buying and selling international currency pairs to profit from the currency price movements. Forex trading is built on the foundation of currencies’ constantly fluctuating exchange rates. Once you gain enough knowledge about the dynamic currency market, you need to devise a solid strategy to generate profits from favourable market situations. Let’s see the reasons that compel people to start their trading journey in the fast-moving currency market. So, these are the top 6 reasons that have led to the popularity of forex trading. More and more are turning to forex trading as it is an excellent option for anyone willing to take calculated risks to walk on the path of financial freedom. The risk is unavoidable, but beginners can test the waters without any risk by signing up for a Forex demo account, and it’s the perfect entrance. But it is important that you have a long-term approach as becoming a successful trader surely takes some time. Forex Trading – What is it?
Why is everyone into Forex Trading these days?
One of the primary reasons that convince people to become a part of the forex trading community is the ease of access. In the earlier days, trading, in general, was not easy to begin with. It was difficult to access the market, and the forex market was one place with only professionals or the higher class taking part. However, advancements in technology and the evolution of online trading have made the currency market accessible to anyone and everyone. You only need an internet connection and a system or device to run the trading software or application.The first step for getting into forex trading is finding a reliable forex broker who will let you access the real-time market by providing favourable trading conditions. Signing up with a broker of your choice and setting up a trading account is a fast and hassle-free process in most cases. The online verification formalities can be completed quickly, and this surely attracts many of us who want to do things conveniently without any complications.
The forex brokers connect traders to the market and supply a bunch of basic and essential trading tools that need to be there in your toolkit to start your career as a forex trader. One of the primary tools that a forex trader needs in their arsenal is a feature-rich and fully functional trading platform like MT4 or MT5, which are the most popular platforms designed to perform trading activities. Your forex broker will be offering one such platform, and you need to pick the one that suits your preferences.
One thing that distinguishes the forex market from the rest of the financial markets is the high liquidity of the trading instruments. Currencies are the standard medium of exchange for people around the world, and this liquid nature of currencies makes the forex market liquid as well. The trading volume of the forex market is in trillions and keeps on increasing every year, which also contributes to liquidity. Forex brokers who are in charge of teaming up with top-tier liquidity providers are also responsible for the ease of entering and exiting trades without any hassle.Liquidity is one of the most essential aspects of trading in any market. There should be a buyer for every seller and vice versa. The lack of liquidity will make the trading process difficult as we will have to wait to place a trade, and this will surely become a problem when timing is crucial for executing a successful trade.When there is not enough liquidity in the volatile hours, you will often experience price requotes and slippages. Your order will not be placed at the price that you intended, and you will have to settle for a different price instead.Liquidity is also dependent on the currency pairs chosen for trading. Major currency pairs like EUR/USD are the most liquid out of all currency pairs. Minor pairs also have good enough liquidity, and exotic pairs are the least liquid but are still in demand due to the high volatility. Making swift entries and exits requires enough liquidity, so you need to ensure enough trading volume and activity before order placement.The forex market does run 24 hours a day through the week and remains closed on weekends only. However, the liquidity and trading volume will go up and down depending on the activity level. There are 4 major trading sessions divided on the basis of time zone differences, and I suggest you pick one of those sessions that fits your time schedule. Session overlaps are the perfect time to trade, as the trading volume tends to peak during this time, guaranteeing more than enough liquidity.
The profit potential of the forex market is unmatched due to the highly volatile nature of currencies. You will always see the market moving in one way or another, whether it’s a clear trend or just sideway movements where prices move within a range. You can find ideal trading opportunities in both market situations, making forex trading an attractive option for all traders. You can make use of both short-term and long-term strategies based on the timeframe chosen for trading.Those who want to make quick and small profits without waiting for a longer duration can go for scalping or day trading, and those who are willing to wait for a higher profit can rely on swing trading as well as positional trading strategies.There is another strategy where you profit from the interest rate differences between the 2 currencies in a pair, which is referred to as carry trading. In carry trading, your profits come from the swap that you earn from the broker by holding onto a position for a prolonged duration instead of price fluctuations. However, there is a provision toavoid swap fees, which can only be availed by Muslim traders. They can open and trade in Islamic accounts to avoid swap fees.The forex market is known for its frequent price breakouts, which have become the perfect entry point for joining a trend. An uptrend will give a chance to go long (buy position) and profit from the rising prices, but a downtrend is also a golden opportunity to make profits from shorting (sell position). In short, you don’t need to worry about profitability as there are countless opportunities in the forex market, which can be achieved with a sound trading plan and risk management.
The forex market also offers a lot of options to diversify your portfolio as a trader by trading with multiple currency pairs. Beginners are always advised to focus on just one major pair in the initial phase, but you need to add more pairs to your watchlist once you gain enough knowledge. Trading with multiple currency pairs allows you to find more trading opportunities. Another way to diversify your portfolio is by investing in the market with the help of a MAM/PAMM account. These accounts are managed by account managers who invest your capital in different assets to generate profits. The primary goal of diversification is minimising the risk without compromising the profit potential. You should be learning about the correlation between currency pairs to get the best possible results with diversification.
The leverage provided by forex brokers works like an amplifier in forex trading. You get to open larger trade positions for a smaller amount of capital as required margin in the trading account. Leverage is one powerful tool that helps you grow your trading account by maximising the profit potential with greater exposure to the market. But you need to be cautious as your exposure to risk will also be higher; hence, focusing on risk management is a must.
When you are a first-time trader, you will have to focus on education and research before anything else. Thankfully, new forex traders can access a lot of free study material online, which makes the learning process easier. You may also need some community support to clear your doubts by interacting with like-minded traders, and you will find a lot of such opportunities on online platforms and forums. This is another reason for beginners to enter the lucrative space, as you can develop a sense of belonging, which keeps you motivated as a trader.Conclusion