Forex Trading is a great way to invest if you are interested in being proactive with your money and want the fun of managing your investments hands-on.
What is Forex?
Forex means 'foreign exchange'. You are investing in a currency pair and betting that one currency will gain value against the other. And if you are thinking this is simple, you are right to some extent. But once you start with trading, you will understand what is Forex like - it's quite a challenge. It can be time-intensive, since the markets are quite volatile, but it is something that anyone can learn.
Getting Started
All you need to do to understand what is Forex like is to register with a forex broker, fund the account, and pick your currencies. There are a lot of brokers that offer micro accounts, which allow you to experiment with trading with relatively small amounts of money. You can learn the ropes this way without putting a lot of your own funds at risk.
There are two main methods of dealing with the markets - fundamentals, and technicals. When you use fundamental analysis techniques, you base your trading decisions on world events and the news. Seasonal changes, weather, politics, crises and major banking announcements will all have an impact on the direction of the markets. If you have a good understanding of these things, you can use that to predict how currencies will be affected.
Technical analysis, in contrast, works on the idea that past movements in the markets will predict future trends. It uses complex mathematical equations to work out where the markets are probably going to go.
Using forex trading platforms such as Meta Trader, you can draw trend lines that will help you to see what is forex market overall direction, and work out 'support' levels that the markets are unlikely to fall below in the near future - and resistance levels, which the markets are unlikely to break above.
Usually, markets will bounce between support and resistance twice or three times, then break out in a given direction after that, before setting a new trend. With practice reading the charts, you can use this knowledge to set buy and sell points for the currencies you are interested in.
It's a sad fact that most people who trade forex lose money. This happens because they don't manage their bankrolls well. They put all of their money into one trade, and use margins and leverage too heavily. This means that when they are trading they run the risk of ending up in debt if the currency moves in the wrong direction. Using margins and leverage allows a person to buy more currency than they can actually afford - if their leverage is 50:1, then every $1 they spend gets them $50 of currency - they gain 50 times the profit if the markets move in the right direction, but lose 50 times the amount if the markets move the wrong way. Tread carefully if you are still not sure what is Forex all about, because it is easy to end up in a financial hole.
