What Is Forex Trading And How Do I Get Started?

person in car looking at forex app on mobile phone

Following the unprecedented circumstances of 2020, many professionals have had to think outside of their comfort zones to create new or supplemental income streams.

Under these circumstances, one field which has attracted many newcomers looking to earn money is forex trading. In fact, Financial IT reports forex market growth of more than 300% over the past year. This has swelled the number of forex traders to more than 10 million globally –– though of that astounding number, some 72% have no prior trading experience.

So what is it that makes forex trading so appealing? And how does one get involved?

What is Forex?

Forex is short for “foreign currency and exchange”. Accordingly, forex trading can be defined as the exchange of one currency for another, for any of a number of reasons including commerce, tourism, or –– to our focus here –– financial trading. As of 2020, over £4 trillion worth of currencies are exchanged daily, and the total market is estimated to be worth £1.4 trillion. And because of its international scope, the forex market is open 24 hours, five days a week, with transactions conducted exclusively via online networks.

Forex Basics to Get You Started

1. Do your research

As with anything else involving finance, it’s important to familiarise yourself with forex before getting involved. Fortunately, the basics of the forex trade are relatively simple –– though there are specialised rules and standards to be aware of. For instance, since forex regulations vary widely between countries, a trader must be aware of his or her own country’s stance and conditions. In the United Kingdom for example, an OTS News overview of financial institutions explains that forex is the least regulated of all. Forex in the UK is, however, still overseen by the Financial Conduct Authority (FCA), which is the independent entity tasked with auditing and protecting brokers. To ensure that you’re abiding by the appropriate rules if and when you dive into forex, read up on what exactly these FCA standards are.

2. Open a forex broker account

Next, you’ll have to set up an account with a forex broker, which essentially enables you to join the market. You will find that forex brokers differ from their counterparts in the stock market in multiple ways. First, forex brokers don’t charge commission fees. This means you don’t have to worry about deductions from your deposits and trades. Second, forex brokerage accounts are generally easier to set up! FXCM illustrates three easy steps that comprise the whole process. You need only fill out a basic form, complete an application via a safe and secure server, and then log in to deposit and start trading. It’s as simple as that. That said, when deciding what kind of account to open, new traders are advised to start with micro forex brokerage accounts. These have more forgiving capital requirements and are easier to maintain as you ease into a new market.

3. Craft a trading strategy

Once you’ve opened an account, you need to develop your strategy. Effective strategies should not only account for the market’s circumstances but your own, too. Forex is a pretty volatile market on an hour-to-hour basis, and you should know that according to estimations only about 15% of all traders make a profit. For this reason, your strategy must account for how much risk you’re willing to take. You should also consider your own emotional and mental wellness. Forex trading can be competitive and demanding. But it can be managed and even enjoyed so long as you’re mindful not to overextend yourself. If when thinking over all of this you’re still uncertain about your strategic approach, a piece on The Balance about common forex mistakes notes that you also have the option of using simulators or practicing with demos. These provide avenues by which you can test trading plans without putting money on the line.

With these three things accomplished, you’re well on your way to becoming a forex trader! The forex market is one of the most liquid and accessible markets in the world for beginners to join. Although it does have a learning curve, it’s easy enough to understand, and with a diligent approach you have the chance to earn meaningful returns.

If trading isn’t your cup of tea, my post ‘What New Side Hustle Should You Start This Year?’ offers some alternative ways to explore additional income (like blogging and affiliate marketing). But if trading interests you and the information above makes forex sound appealing, go ahead and give the market a closer look!

“Contributed by: Leah Flynn”

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