With the poor interest rates that most people are witnessing around the world, interest in other financial industries is high, as people look to increase their money in various different ways. Forex has a been a popular option for several years amongst those looking for an alternative to the standard savings accounts and these 7 questions are some of the most asked by beginners.
1. What exactly is forex trading? Forex is the abbreviated name of the foreign exchange market, which is sometimes shortened further to simply FX. In its most basic form, it is essentially the buying and selling of worldwide currencies.
2. How does it work? The way forex works are by the concurrent buying of one currency and selling of another. Currencies are generally linked together and the information that traders receive depends on which currencies they buy and sell, in how large a quantity and when.
3. How much risk is there involved? Trading on the foreign exchange market is considered to be one of the riskiest types of trading possible. Whether you have any experience or interest in forex or not, it is likely that you will be aware of the quick changes in the foreign currency market.
For example, if your holiday abroad and are looking to exchange your money before you leave, it is apparent that the exchange rate can increase and decrease substantially over the course of just a few days.
4. Do I need any previous trading experience? On paper, no previous trading experience is needed if deciding to get involved in forex. However, with this in mind, due to the volatility of the market, as much previous experience as possible should be gained in more stable markets before moving to forex.
Of course, it is understood that not everyone can have substantial amounts of hands-on trading experience and therefore if you are new this type of trading, it is recommended to spend months preparing, especially if you are planning on using any amount of real money.
5. What is the difference between forex and stock trading? The primary difference between forex and stock trading is the length of time investors and traders look for a return on their initial investment. In stock trading, it is generally considered that any traders are in for the long term, with an expectation to see a return on their money within a period of anything from a couple of months to several years. With forex, however, the returns are expected to be much, much shorter, often with a few days.
6. Are there any main participants involved in the trading of forex? A survey carried out by Euromoney FX in May 2009 found that out of the top 10 currency traders of forex, Deutsche Bank was in first place, with a market share of 20.96 percent. This was over 5 percent more than the second position holder, Swiss financial services company UBS AG, who had a 14.58 percent share of the market.
7. What do I need to start trading forex? The only requirements to begin trading forex are some funds and a computer with internet access. From here, anyone can open an account with a forex broker and begin trading immediately.
Although this may be the case, it is important to know that rather than jumping straight into this type of trading, the greater understanding that you have of the industry, the greater chance you have of seeing a positive financial return.