What’s Foreign exchange Buying and selling and Begin in Singapore, Cash Information

Forex trading is volatile, fast-paced, and risky, but some traders have found great success with it. Here’s what you need to know before you start trading forex.

For those who don’t find the stock market entirely exciting or fast enough, forex trading offers a hyper-speed alternative.

As the largest market in the world – bigger than the stock market – the forex market has reached a daily trading volume of up to $ 6.6 trillion ($ 9 trillion).

Given that typical forex trading is completed in minutes, it is not difficult to imagine the fortunes that have been made (and lost) on the forex trading floor.

To be clear, forex trading should not be taken lightly. But for the curious, here is what you need to know about forex trading.

What is Forex Trading and How Does It Work?

Forex (or fx) stands for foreign exchange. This involves trading one currency for another. As with any trading activity, the motive in forex trading is to make a profit.

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Forex trading can make profits because the value of currencies is not fixed relative to each other – they can move up or down depending on factors such as demand, monetary policy, and other geopolitical factors.

Instead of a centralized exchange, the forex market is a digital network of banks, brokers, institutions and traders. This digital nature of the forex market also means that it is easy to trade forex – you can easily do so with an online account.

The forex market is active 24/7 so you can trade as you wish.

Since the instrument being traded is currency, another characteristic of the forex market is its high level of liquidity.

How exactly does forex trading work?

Essentially, in a forex trade, you are betting on the relative strength (or weakness) of one currency versus another. If you bet correctly you will make a profit; if not, then a loss.

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Forex trades always involve selling one currency for another. Therefore, trades always take place around a currency pair, for example USD / EUR.

The first currency is called the “base currency,” which is the currency that you buy. The second currency is called the “quote currency” and is the currency that you sell.

For example, if the price of the USD / EUR pair is 1.3456, then $ 1 is worth 1.3456 euros.

When the US dollar strengthens against the euro, it means that 1 US dollar is worth more euro. Which means the price of the pair would go up – let’s say 1.3476.

When the US dollar weakens against the euro, it means that US $ 1 would be worth less than the euro. In that case, the price of the pair would go down – let’s say 1.3406.

In other words:

Let’s look at an example of how it all works.

Trader Charlie believes the US dollar will rise against the euro (which means the price of the USD / EUR pair will rise).

He thus takes a long position on the pair. Here are the possible outcomes for Charlie:

However, if Charlie believed that the US dollar would instead weaken against the euro (or in other words, the euro would strengthen against the dollar), he would take a short position on the pair instead.

Here are the possible outcomes in this case:

(For a quick summary of both short and long positions, see our guide to options trading.)

ALSO READ: 13 Things Millennials Should Know Before Investing

Forex Trading Vs. Stock Trading: What’s the Difference?

Reasons for Participating in Forex Trading

1: Forex trading is fast moving

Due to the very volatile nature of currency prices, currency transactions usually move very quickly. Most traders will close their positions the moment they make a profit and are unlikely to hold onto if their trade is against them.

This means that forex trades are usually made and completed very quickly, which can be attractive to certain types of traders.

2: Can start trading with little capital

You can start Forex trading as low as $ 100, which is attractive to those with limited capital. With that in mind, forex trading has a lower barrier to entry than stock trading, which requires a far higher amount of capital to buy high quality stocks.

3: Trades can be made with high leverage

Leverage trading isn’t limited to Forex. However, leveraged trading is very common among forex traders, especially those who want to grow their profits quickly.

Forex trades can be made with leverage of up to 50x. While this can make a big profit, the losses are similarly multiplied, making leveraged forex trading a very risky activity.

Potential pitfalls of forex trading

Volatility is not for the faint of heart

Turn on your favorite currency conversion app and you will see the prices change by the minute. Forex trading can be so volatile.

Currency prices change throughout the day. Now imagine that you have opened a position of $ 10,000 and are waiting for the price to fall. However, it seems that the price is running against you, creeping up with every tick of the clock.

What would you do? Do you hold your position with the belief that the price will fluctuate in your direction? Or close out your position to avoid an even bigger loss?

By the way, while there is technically no limit to how long you can hold your position, there may be overnight fees and other fees. So no stress!

Leveraged trades are common

Forex trading is a highly emotional game, and even those who pride themselves on having nerves of steel are put to the test.

Part of the temptation comes from the common and widespread use of leverage, which essentially means trading in borrowed money. Leverage allows you to increase the amount of money in your trade even if your starting capital is only a fraction of the amount.

With the larger sum, the profits are increased so that traders can quickly make a big profit. However, the opposite is also true. Leverage will similarly add to your losses, meaning that one bad trade can wipe out all of your profits and capital, and even put you into debt.

Success takes work and luck

So that we understand each other. Forex trading is easy on the surface, but if you want to be able to make the right calls, it will take a lot of time and effort to study the underlying factors that affect currency rates.

This includes keeping up with current events and having a thorough knowledge of history and economics. The ability to understand highly technical issues such as monetary policy and predict socio-economic trends is also helpful.

To call it a complex task is an oversimplification.

Even then, you can’t be sure you’re making the right call. The outcome of your trade may come on a whim, depending on which path Lady Luck takes.

ALSO READ: Guide To Options Trading: An Option For Advanced Investors To Profit From

How to start Forex trading in Singapore

All forex trades must be done over the counter, so the easiest way to trade forex is with an online broker.

Popular brokers offer a wide variety of currency pairs, competitive trading fees, a well-designed trading interface, and convenient financing options.

Some good quality brokers also offer beginner guides, news, and educational materials that can increase your chances of success.

This article was first published on SingSaver.com.sg.