What is Forex trading
The development of Forex at a rapid pace contributes to the emergence of new participants in trading.
They can be divided into different groups by their importance:
The first and, perhaps, the most important are central and commercial banks. They account for the lion's share of all currency transactions in the interbank market. Other bidders in these banks hold their accounts through which they carry out financial operations.
Commercial banks represent a significant number of counterparties that are intermediaries in the financial operations of their customers.
Payments or money transfers through commercial banks are made online. However, due to differences in exchange rates, it is more profitable to purchase currency in Forex independently.
The third group includes currency exchanges, brokerage and dealing companies. Currency exchanges do not take part in exchange operations as separate representatives of the market, but they form its structure. Although in several countries there are such organizations that perform currency exchange for legal entities. In this case, the exchange rate is actively influenced by the state itself.
Brokerage companies act as intermediaries. For communication of sellers with buyers, they take a percentage of the transaction amount. Quite often, brokers are intermediaries of trade corporations, investment funds and companies.
Traders, or individuals, represent the fourth, most numerous group of participants. Since 1986, they have had an excellent opportunity to invest money in Forex trading. The development of the Internet, the correct prediction of the dynamics of currency rates, the optimal choice of trading strategy allows them to get a good profit on exchange rate differences.
Also, individuals are engaged in non-trading operations in foreign tourism, the purchase and sale of cash currency, fees and pensions.
How transactions are operated
A three-letter code expresses any currency unit on Forex. For example, the pair "British pound / US dollar" looks like this: GBPUSD.
Since any asset can be sold or bought, there are two prices:
Bid - the offer price. At this price, the seller is ready to sell the base currency (in this case, GBP) and buy the quote currency (USD).
Ask - the bid price. At this price, the buyer is ready to buy the base currency (GBP) and sell the quoted currency (USD).
Spread is the actual difference between supply (bid) and demand (ask). It is the earnings of a brokerage company, commission, without which trading is impossible. Covered is paid once - at the moment of transaction opening.
The volume of any transaction is measured in lots. The standard is 100 000 units of the base currency. Earlier private persons could not trade on Forex as not everyone had such sum of money. Now, thanks to the leverage, any participant can engage in trading. It is what made Forex so famous.
Leverage broker provides a collateral amount (margin) on a trader's deposit. Hence the name - margin trading.
What does it take to start trading on Forex?
Initially, you should pass a simple registration on the broker's website. Having specified your identification data, you should download and install Metatrader trading terminal on your computer or phone.
The F1 key allows you to get background information about working with the program. To make more accurate forecasts of further price movement, the terminal can use various indicators, as well as build auxiliary lines.
For training, it is desirable to open a demo account. Using virtual funds, a novice trader can choose the most suitable assets for trading, as well as develop and test his trading strategy.
The acquired skills can be further tested on a cent account. It is trading with real funds with minimal risk. During trading, possible losses will be minimized.