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What is Forex?

Forex is also known as FX, forex exchange or currency trading. It is a global market where the world’s currencies are traded for profit. It has been estimated as the largest liquid market the world has ever seen as it has a daily trade volume of $5trillion.

Have you ever traveled overseas? You might have been required to convert your local currency to your destination country currency. When you do this, your funds will be converted based on the exchange rate between these two countries which depends on the market forces of demand and supply at the time of the conversion. Currency exchange is the basis of forex, and thus, it is a versatile market that would always be a green land for most investors and speculators.

The forex exchange has distinguished itself by the absence of a centralized marketplace for forex transactions. Currency exchange is done over the counter (OTC) electronically. This implies that traders trade on various forex trading platforms over the internet and they never meet physically. The market operates as an open market all day. These world currencies are traded in major financial markets of the world such as in London, Tokyo, New York, Zurich, Singapore, Hong Kong, Paris, and Sydney. At any time of the day, the forex market is active, and the price quotes are constantly changing.

 

What Is Forex Trading

The exchange, speculating, and trading of foreign currencies across multiple platform is what has evolved into the standardized form of forex trading that has gained traction today. Perhaps the most lucrative business platform available today; forex trading, conducted by banks forex affiliates and individuals has an estimated daily turnover of $5trillion; making it a lucrative, sustainable source of income for those with the right handle on the market.

Trading in forex/foreign exchange, while it sounds as easy as exchanging currencies based on established exchanger rates, is more complicated than that; requiring the intervention of forex affiliates, of which we rank highly. Forex trading is a 24/7 enterprise: the global currency exchange market never sleeps, and the ‘interbank market’ experiences no downtime, i.e. you can rake in profits every minute of every day.

 

Historical Development of Forex Trading

From time immemorial, people have sought a way to make a profit doing business with others. From sales of fruits, to the trade by barter system, mankind consistently developed an avenue to exchange services, goods, and most importantly, currency. While the barter system gained early foothold, the advent of the metal age revolutionized the transactional habits of traders.

Gold, silver and bronze (in some cases) quickly replaced the trade by barter system as the preferred means of exchange. Gold became the new standard for currency and a viable measure of wealth. But, like all precious metals the price and value of gold began fluctuating, and this caused widespread panic across the globe.

In 1931, to be specific, what we consider the Forex market was de factoborn; with people from different countries beginning to exchange their legal tenders as a form of trade, rather than depending on therelatively temperamental gold standard. The IMF, World Bank, GATT, in July of 2014 introduced a new standard in currency exchange, based entirely on the US Dollar. Along with the dollars, Central Banks across the world began to set equivalent value; around $35.00 per ounce; to prevent a global destabilization of the global economy.

Forex trading in its simplest form is the exchange of global currencies, all of a set value, at varying times in the bid to make a profit due to the disparity in set price. As currency exchange, you, or most likely your forex broker deals with two currencies; a base currency and a quote currency. A forex transaction is described as a currency pair quotation, the first currency that appears is the base currency, and inversely, the second currency quote is the quote currency. The goal of forex trading is exploiting the difference between the established prices in a bid to make a profit.

 

Getting Into Forex Trading

Getting into the forex market, is theoretically straightforward. However, the intricacies, swings and dips of the market usually require a professional, savvy hand at the helm; which is where forex affiliates and brokers step in. A regulated broker provides a comfortable avenue for a newbie or even a veteran trader to continue to expand their Forex portfolio.

The first step to getting into forex trading is identifying a regulated, legitimate forex broker with at least half a decade of trading. After establishing legitimacy by confirming with your company’s regulatory body, your broker gets to work, nay, has a duty to help you maximize your earning potential in the often murky world of foreign exchange.

 

What is a Forex Broker?

A forex broker is best described as a “middleman.” One that connects forex traders with the forex market. Since the onset of forex trading, forex traders have been existing and trading mostly on behalf of the trader who has entrusted funds in the custody of the broker with the hope of getting good returns for capital invested.

 

The Emergence of Forex Brokers

Even though forex exchange has been existing for decades, one could not help but imagine how forex brokers emerged and became a part of the system. For everything, there is an origin, let’s examine how they originated and for what purpose.

Forex trading dates back to the time of the Babylonians. Before the introduction of currency exchange, the Babylonians were already exchanging goods with other items and commodities. People began to exchange gold and silver during the beginning of the metal age. The idea became popular and spread to other parts of the world. However, gold became restricted during that era as it grew popular. A great panic followed as more people wanted to exchange their goods for gold. This resulted in the removal of the gold standard in 1931 and saw the birth of the forex market that same year. The foreign exchange market was introduced to ensure stability and reliability. The forex market was initiated with the US dollar.

 

Why Use A Forex Broker

Many assume the business of forex trading is as simple as merely buying and selling exotic currencies at the right time, in order to make a profit. While this is the summary of the forex gist, there are still intricate details that need a professional’s touch to streamline and steady.

With a regulated and licensed forex affiliate program, you can expect the following perks;

  1. Intensive Training Protocols and Widgets

Depending on your level of expertise or knowledge about the foreign exchange market, your broker has a duty to enlighten and tutor you ok. The intricacies of the hugely profitable, get volatile market. There are various instruments of learning available for new, intermediate, or even veteran investors. Expect intensive, or brief, depending on your knowledge level, tutorials to acquaint you with the A-Z of the Forex market. Seminars, webinars, eBooks, and even an assigned tutor are just send of a few of a regulated broker training wheels protocol for clients.

Along with training, a forex broker provides invaluable tools and protocols to help ease you into the forex trading market. Margin calculators, pip calculators, profit calculators, economic trading calendars, trading signals and foreign exchange currency converters are just a few of the forex tools a good forex broker provides to their clients.

  1. Demo Accounts (To limit risks)

No forex broker worth his/her mettle let’s a newbie dive straight into the world of currency exchange without giving them a test run of the volatility to expect. A demo account is dictated by real market forces, but worth the advantage of carrying zero risks—letting clients get a feel of the nature of the forex market before committing actual cash to the endeavor. The use of a demo account prepares clients for the hustle and bustle of the forex market; necessitating quick decision making, and often speculative trades in the expectations of a larger payout.

  1. Identifying Juicy Prospects

With decades of experience in the foreign exchange business, a forex affiliate or forex broker has greater insights into what constitutes great prospects and what deals carry a heightened risk of  bust.

  1. Diverse Currency Pairs

Forex Trading goes beyond simply trading Euros for Dollars. No, there are a lot more combinations and pairings available on the market, and the bulk of these are usually within the purview of industry tested forex affiliates. There are seven major currency pairs being traded on the market; besides these, there are multiple other combinations—exotic pairs, crosses, all with varying levels of risk and return.

It never pays (literally) to jump into a forex trade without having the guidance of a regulated broker.

 

How to make Money in Forex

People would buy a currency pair at a lower price and sell it at a higher price, and their income is the difference between the Buy and the Sell price. The broker gets a tiny commission from your trades called Spread.

Here is an example:

Let’s assume that you have $100 on your trading account and want to trade EUR/USD. Its exchange rate is 1.25, which means that for 1 euro you get 1.25 US dollars. The exchange rate is like a price tag at the grocery store – the only difference is that the price tags on Forex are changing all the time.

After that, you make a forecast. For example, you forecast that the Euro will rise versus the US Dollar.

Next, you buy 80 euros for your $100 and wait for the exchange rate to change.

Let’s imagine the price rose from 1.25 to 1.35 . The most profitable move here would be to close the trade at this point and enjoy the payout. By doing so, you can exchange your 80 euros back to 108 dollars, and get your profit of $8.

If you think this amount of money isn’t worth bothering, there’s great news: your broker can help you make much more money with a special tool called leverage. Leverage is the fund you borrow from your broker to multiply your deposit.

For example, if you used the leverage of 1:1000 at FXTM for a similar trade from the previous example, you would get $8000 with just one trade. So, you invest $100 and trade with $100 000. Not bad, right?

Just remember: High leverage can bring higher profit, but it involves higher risk, so risk management is an important part of forex trading!

 

Other ways to make money from forex trading, is through copy trading or become a forex affiliate.

 

What is Copy Trading?

Copy trading can be any situation whereby a trader automatically copies the trading position of an investor in a social trading context. In copy trading, a set portion of the copier’s funds is linked to the investor’s trading account. If the investor takes any action in his account, such action is automatically executed in the copier’s trading account following the proportion of the investor’s account to the copier’s account. This is a common trading technique that most traders adopt in the market.

 

What is Forex Affiliates?

Forex affiliates are best described as an online introducing broker, and they neither have an office nor sales staff. They refer clients to forex trading platforms through their website. And they usually have a large number of traffic on their sites. It has a unique resemblance to affiliate marketing. Therefore, a forex affiliate can only receive a commission when he successfully refers another person to the broker, and he registers successfully with the broker and commences trading. Becoming a forex affiliate is pretty easy as you could sign up within five minutes in most forex affiliate sites.

 

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About Us - ForexCPA is focused on providing transparency on the financial and forex markets to forex traders, through forex education and forex broker comparison and assessment of services. ForexCPA.com will not be held legally responsible for any loss or damage resulting from relying on the information presented in this website, including brokers' reviews, financial news, authors' opinions and/or analysis. The data included on ForexCPA.com is not always published in real-time and/or necessarily accurate and do not always reflect the views of ForexCPA.com owners, employees and/or content contributors. One should know that Forex trading or any other kind of trading involves high risks, and is not suitable for everyone. Before trading Forex or any other financial instruments, one should be aware of the risks, what are his exact investment goals and limits and acquire a fine level of risk understanding and risk management.