Trading on the foreign currency markets has been gaining in popularity, and we have put together a brief guide to explain some of the charges you may face when starting a trading account. For those who are new to forex trading, we have also included some information to help you understand how forex works and how you can get involved. Take a look.
How Forex Works?
Financial traders like to invest in a wide array of different markets such as commodities, shares, bonds, and currency. Forex trading is when people or financial institutions trade currencies (and the differences between those currencies) to make money. By using data gathered about an individual country’s currency, we can decide whether it will rise or fall against another currency, and this is where profit can be made. Most trading accounts allow the leveraging of money when trading, which means there are significant profits, along with the possibility of big losses, too.
Increasing Demand for Forex Trading
Foreign currency trading has always been popular with financial institutions, and we now see many novice traders getting involved. The growth in the market is driven by the expansion of online trading and the easy to use platforms available for newcomers. The total forex market increased by 20% between 2007 and 2010 and has continued to expand in recent years. Many online trading accounts are managed by casual investors who are looking to make extra money or to trade from home on a full-time basis.
Starting a Forex Account
There are many different online platforms you can use to trade on foreign currencies, and they all want you to join with them, so many provide incentives to get you started. Demo accounts are popular for novices as it lets you trade with fake money to get an understanding of how the platform works and you can try out your investment strategy with no risk, but unfortunately, also no reward. For people who want to have a chance to make a profit without investing one’s hard-earned money, there are platforms that offer no deposit accounts. Having a no deposit bonus lets you have the opportunity to practice with real money, and the platform provider accepts all the risk. No deposit accounts are offered in the hope that you will keep using their platform to trade in the future.
Understanding the Spreads
There are various avenues where your trading platform provider can make a profit from your trades, with the most common being the spreads. Your trader will offer you prices that are a little bit more than they pay for your trade and this is where they make their money. The spread is the difference in price between the bid and ask price. Spreads may vary depending on which currencies you choose to trade, and the lowest spread price is typically between the USD/EUR as it is the most liquid currency pair.
Commission Payment Traders
Some trading platforms will offer their customers the exact same price as the trader pays or remarkably close to it. To make a profit from their service, they will charge a commission fee for each trade they execute for the customer. The amount of commission paid varies between brokers, but it is usually aimed at large institutions that make substantial investments in the market. Most casual investors will use a trading platform that charges via the spread difference as their trades are typically much lower.
Rollover Rates
At the end of the day’s trading, you can choose to either end any trades you currently have running or roll them over to the next day. Most trading accounts will charge a rollover rate to hold on to your trading positions overnight. The amount a customer needs to pay for rollover is based on the interest rates in the country’s currency that they are trading in.
Becoming a Successful Forex Trader
Unfortunately, there is no straightforward guide on how to become a successful trader in the forex market. To make money from trading can take lots of practice, willpower, and determination. Only trade in currencies you know to start and keep your investments small until you get the confidence to look at other currency pairs. Most trading platforms have vast resources to help people understand the markets, how to trade and how to avoid costly mistakes. Only use trading platforms that have a clear and transparent website that details exactly where they make their money and how their charges work for new and existing customers. Newcomers to online forex trading should also use forums to chat with other forex traders where you can ask questions and get advice on how you can start a successful forex trading account.