What Is Forex Trading All About?

Today, over 15 million people engage in Internet-assisted trading across the world. From currencies and stocks to commodities and indices, there is a profit generation instrument for anyone. Thanks to online trading platforms, global finance markets are accessible at the click of a mouse. The South Africa region is seeing a surge in Forex trading and this is hardly surprising.

Harnessing the Power of Volatility

Currency exchange rates are always in flux, which is common knowledge. The factors affecting the values are diverse. From domestic monetary policies to geopolitical conflicts, there are both micro- and macroeconomic drivers. This is exactly what provides a trader with a chance to derive monetary gain.

Currencies may be traded – bought or sold – in pairings. One of the most conventional choices is the highly popular EUR/USD combo. The price (e.g., 1.28) reflects the value of 1 Euro in US Dollars. In this example, a Euro is worth 1 US dollar 28 cents. The general formula is “base currency”/”quote currency” (the latter is also known as “counter currency”).

All combinations purchased and sold via platforms are divided into three distinct categories. These are so-called “majors”, “minors”, and “exotics”. While the first class is the most popular, exotics are traded rarely as they come from the least developed economies. Classification of minors may differ. Most commonly, these are pairings with EUR, GBP, and Yen, but without the US Dollar.

Gaining Access to the Market

A live trading account registered with a broker opens access to the international marketplace. However, it is imperative that you gain sufficient experience first. Risk is an inevitable element of trading, but it may be reduced by practice and thoughtful preparation.

As a retail trader, you will be monitoring and analyzing market dynamics. Luckily, developers of dedicated software embed ample forecast aids into their products. In order to grasp the logic of successful trading, take time to explore the system in a risk-free mode. This is exactly what a demo account will allow you to do.

Do not trust too easily. Choose a reliable broker that is licensed to operate in Nigeria and is monitored by state authorities. Companies like ForexTime are trusted by millions of users on different continents. At the same time, you can stumble on fake websites set up by cybercriminals. As the broker will be processing all monetary transfers, it is crucial to ensure the provider is legit.

Other Types of Accounts

Live accounts – i.e., those that use real money – are divided into categories based on the size of required deposit and other criteria. The exact grouping may differ depending on the broker. However, it is always reasonable to start small rather than putting large sums at risk.

An intermediate step between the demo mode and serious trading is the so-called cent account. As the name suggests, the balance is nominated in cents. These schemes usually require modest deposits (such as $10), and they allow you to get used to real trading without excessive risks. However, thanks to leverage, you may trade more than you invest.

Advantages of Leverage

FX leverage is a way to boost a trader’s buying power. As part of the scheme, the broker adds their funds to your balance, thereby magnifying the volume you can trade. The ratio is calculated as the total size of the lot (the amount traded) divided by the initial margin (your required deposit).

One of the most attractive ratios, 1:100, means you may open positions for $100,000 by depositing only $1,000 of your own money. If you make $1,000 in profit, this translates into a 100% return! It must be noted, however, that losses are just as possible. With higher volumes comes higher potential risk.

More Instruments to Consider

Currencies are not the only option available in digital trading. Experienced players add other tools to their portfolios, thereby increasing potential gains. For instance, CFDs on stocks or commodities make it possible to profit from market changes without owning any physical assets. Most commonly, these other tools are traded via the same platforms as currencies, and they allow clients to decrease risks via diversification.