Forex Trading is the simultaneous buying of one currency and selling another for:
1. Capital gains (pips), or proﬁting on floating exchange rate between two currencies (eg. EurUsd) by either:
- Buying low and selling high a currency pair anticipating that the base currency (the one on the left) will appreciate against the counter currency (the one on the right);
- Selling high and buying low a pair anticipating that the base currency will depreciate against the counter currency.
2. Steady income (swap points), or proﬁting on the interest rate differential between two currencies by either:
- Buying a forex pair with a higher interest rate base currency (the one on the left) and lower interest rate counter currency (the one on the right);
- Selling a forex pair with a higher interest counter currency and lower interest base currency.
Forex trading always involves two currencies. If you are going on a trip to Europe, you take your US dollars and exchange them euros. That's a currency transaction—exchanging one currency for another. Forex traders do the same thing, except they are attempting to profit from changes in the prices of the currencies.
Currencies are always quoted relative to one another, called a pair. For example, the EUR/USD is the price of US dollars relative to euros.
There will be a price associated with the currency pair, and that price will constantly change. For example, if the price is 1.2000, that means it costs 1.20 US to buy one euro. If the rate was 1.2525, then it costs 1.2525 US to buy one euro.
The most heavily traded currency pairs in the world are associated with the US dollar and other major global currencies, including the Japanese yen (symbol: JPY), British pound (GBP), Australian dollar (AUD), New Zealand dollar (NZD), Euro (EUR), Swiss Franc (CHF) and the Canadian dollar (CAD). Therefore, the more commonly traded currencies are the EUR/USD, GBPUSD, AUD/USD, USD/CHF, NZD/USD, USD/JPY and USD/CAD.
1. Choose a broker
As with evaluating any vendor, to find a suitable online forex broker — whether you’re a new investor or a seasoned active trader - do your homework. A forex broker is an entity that connects retail and professional forex traders with the forex market.
2. Open an Account
The requirements for opening a Forex account have become simpler since the growth of online Forex trading. Today, opening a brokerage is almost as simple as opening a bank account. Many brokers allow you to open one quickly online.
Decide how much money you invest
Forex trading has among the lowest entry or startup costs in money and time of any ﬁnancial market, in terms of trading capital and training/equipment costs. Unlike most markets, you do not need many thousands of dollars to get started. That’s because in forex, we can trade with leverage (borrowed funds), typically 100:1 or more. This allows us to make substantial proﬁts on small price movements.
The trading week runs 5.5 days per week, 24 hours a day. It begins in Asia Sunday afternoon Eastern Standard Time (EST), or Sunday evening Greenwich Mean Time (GMT), and progresses each day until the close of trading in the United States as follows.
New Zealand trading is open from 2:00 P.M. to 11 P.M. EST starting Sunday.
Sydney is open from 5:00 P.M. to 2:00 A.M. EST. Tokyo is open from 7:00 P.M. to 4:00 A.M. EST.
Hong Kong and Singapore are open from 9 P.M. EST to 6 A.M. EST.
Frankfurt, Germany, the primary European market, is open from 2:00 A.M. to 11:00 A.M. EST.
London is open from 3:00 A.M. to 12:00 noon EST. London is the world’s largest forex trading center.
New York opens at 8:00 A.M. to 5:00 P.M. EST. NYC is the second-largest forex center.
Currency rates don’t tend to move by big intraday margins, so there are basically two ways to make money in forex trading:
1. Riding stable, proven, long-term forex trends such that weeks or months movements still translate into large amounts of money.
Forex market produces some of the most stable long-term price trends that are ideally suited for long-term investors, and also can provide simple, effective ways to proﬁt in bear markets. Currencies can be excellent long-term plays because the fundamentals of the underlying economies that drive currency prices change much more slowly than those of individual companies. It’s a longer, more complex process to change the relative growth rates of entire economies than it is for an individual company.
Using leverage to amplify small hours or days percents movements and make bigger profits, and that is the basis for retail forex trading.
For example, with 100:1 leverage in forex trading, a daily average 1% exchange rate fluctuation means 100% proﬁt. It also means a 100% loss. Leverage in forex trading needs to be managed very carefully to limit the risk as losses can sum up quickly.
The platform should offer advanced financial trading functions, as well as superior tools for technical and fundamental analysis. It should also trade forex automatically by using trading robots and trading signals. In addition to the desktop and mobile versions, the platform should be available on the web to be accessed from any device.
Oftentimes, trading platforms will come bundled with other features, such as real-time quotes, charting tools, news feeds, and even premium research. Platforms may also be specifically tailored to specific markets, such as stocks, currencies, options, or futures markets.
MetaTrader 5 is the most awarded forex trading platform in the last year.
While forex trading is a legitimate endeavor and not a scam, plenty of scams have been associated with trading forex. As with many industries, plenty of predators exist out there, looking to take advantage of newcomers. Regulators have put protections in place over the years and the market has improved significantly, making such forex scams increasingly rare.
The foreign exchange market is huge, with an average daily trading volume of more than $5 trillion, including currency futures and options. It's also not very well regulated. That means the opportunity still exists for many forex scams that promise quick fortunes through 'secret trading formulas,' algorithm-based 'proprietary' trading methodologies, or 'forex robots' that do the trading for you.
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