What is Forex Online Trading?
Prior to examining the Forex Online Trading, it is important that we should have a clear concept of the Forex Market.
Forex Market also known as Foreign Exchange Market, FX Market, International Stock Market etc. is by far the biggest market of the world as per business volume and transactions are concerned. As BIS (Bank for International Settlements) revealed in a study, the average volume of trade is around $5 trillion per day.
Another interesting aspect of this wonderful market is it operates without a centralized marketplace. Trading is conducted through its unique OTC which connects all the traders around the world via computer networks.
It remains open for 24 hours a day and five and a half days a week.
As for trading is concerned, Forex allows you to trade in all major currencies, precious metals, commodities and on the shares of blue chips companies to book your profit. You can earn big by investing small money in Forex.
As we all know it is a digital market so you have the luxury to make money right from your drawing room with the help of an internet connection and a computer or smartphone.
Because of its huge volume and volatility, it can make you a billionaire overnight if you are sensible and fortunate enough but on the other flip of a coin, You can be on the roads in no time.
Types of Trades On-Offer at Forex Online Trading
There are three basic types of trading on offer. I don’t mean the different terminologies used in the trading language like scalping, day trading, swing trading, position trading and swap trading blah blah. Instead, we will discuss the basic types of trading on offer.
A Spot Trade is a sale or purchase of a currency, a precious metal, security or a commodity on immediate payment and delivery basis.
A contract in which Forex market locks in the exchange rates for a sale or purchase of a currency on a future date, is called Forward Trading. It works through OTC (over the counter) as it can’t be traded through centralized Forex Market.
A Future trade means a central financial exchange where people can buy or sell a specific quantity of a security or a currency at a specified price with delivery set at a specified date in the future.
How Forex Online Trading Works?
Like any physical market, Forex Online Trading is also based on simple supply and demand principle. Forex Trading is all about selling or buying one currency to another (in the case of commodities, securities, precious metals or stocks, buying or selling against USD).
Common Terminologies Used in Forex Online Trading
You have to trade in the shape of a pair. For Example, JPY/USD is a pair where you are buying Japanese Yen against the US dollar.
Base and Quote Currency
The first currency listed in the pair formation is called ‘base currency’ and the second currency is called ‘quote currency. In the above-mentioned example, JPY is a base currency and USD is a quote currency. The price of a forex pair is how worthy is a single unit of a base currency against a quote currency. In above example, if JPY/USD is trading at 111.217, then one dollar is worth 111.217 yens. If the yen rises against the dollar, the pair worth will increase and a single yen worth more dollars.
There is another terminology, called SPREAD. Spread is the difference between the buying and selling price of a pair.
The measurement unit of the movement of a pair in both directions (increase and decrease) is called pip. Usually, it is equivalent to one digit movement of forth decimal value of a currency pair.
A leverage trade enables you to carry a position in Forex Online Trading Market by paying only 0.5% of the total value of a currency lot. However, when you close a leveraged position, the profit or loss will be determined by the full size of your trade. While it offers to book a chance of higher profits, it also brings in the risks of amplified losses into play.
Forex Trading Lot
A standard lot of a currency is equal to its 100,000 units. However, there is a luxury to trade in mini lots or micro lots which are equal to 10,000 and 1,000 units respectively.
Individual traders don’t need to have 100,000 Yens, Euros, Pounds or Dollars etc. to hold a position in Forex Market. That’s where leveraged trading comes into play. Many brokerage houses are offering leveraged trading nowadays.
A bid price is a price; a buyer is willing to pay for a lot of currencies, securities, precious metals or commodities.
It is opposite of bidding price where a seller is willing to sell his shares at a specific price.
Both prices quote together in Forex Online Trading where the bidding price is always lower than the asking price.
Stop Loss or Trigger Price
A stop loss or trigger price is a value where you get triggered out automatically from Forex Online Trading Market once the market hits a certain price. The aim behind to put a stop price in your Forex Trade is to limit the loss on a buy or a sell position.
A stop price becomes a market price when a buy or sell order trades on that certain amount.
It describes the current trend or direction of a currency pair or financial instrument, commonly used to judge the entry and exit points when trading.
There are various types of trends like Bullish Trends, Bearish Trends, Flat Trends, Dovish Trends and Hawkish Trends etc.
Things to Consider Before Jump into Forex Online Trading
As discussed earlier, it is the biggest market of the world as per volume is concerned. So the risks are also on the higher side. If you want to trade on a currency, for example, the Japanese Yen, you should have proper knowledge about the Japan recent economy conditions, Bank of Japan’s assets and treasury bills, political conditions, imports and exports, industrial productions and geopolitical events etc. In financial terms, it’s called ‘Fundamental Analysis’. These type of factors influenced a long way as per the value of a currency is concerned. Also, it’ll enable you to make a decision whether to buy or sell a specific currency or security.
Forex Online Trading maybe not suitable for everyone due to carrying the high level of risks. Before jumping into it, you should consider your investment objectives, whether you can sustain a loss of some or all of your initial investment or not. You should also consider your level of experience and skills, and appetite of risks.
Top 5 Forex Online Trading Centers in the World
The UK Financial Centre of London is Largest among the others. As per recent BIS study, Daily trade volume is around 37% of the daily global Forex volume with approximately $2,000 billion mark.
Having its financial capital in New York City, US has the second largest share in daily trade of global Forex volume with 18% and around $904 billion.
Japan is third on the list. Tokyo is also the financial capital of Japan. Its daily forex turnover is 6% of the global forex trade. Trade volume is $312 billion daily.
Next on the list is Singapore with 5% volume of the daily global trade. Average daily trading volume is $266 billion.
They’re marginally behind the Singapore. It has an average share of 5% volume of the global trade on daily basis with $263 billion turnover. Zurich is the financial capital of Switzerland.
Pros and Cons of Forex Online Trading
- Through leveraged trading, even a small amount of capital can go a long way to booking your profit. It enables almost everyone to try their luck in Forex Online Trading.
- You have the luxury to trade round the clock as Forex Online Trading remains open for 24 hours and 5 and a half days a week. It allows you to select a time of your convenience.
- There are too many services and tools available on the internet. Many of them are free of cost. You can take the advantage of it to trade more accurately.
- You can make money with the comfort of your home by making some clicks.
- Automated trading softwares enable you to make a right trade on the right time. It depends on how you automate your software in this regard.
- Forex market is very fast and volatile. It means you can make money fast but the downside of this you can lose money at a very fast pace too.
- Value can change in a blink of an eye. Also, it’s hard to predict in most of the situations.
- Sometimes, a little internet failure or a problem in your computer can harm you a lot if you have an open position in the forex market.
- Another big disadvantage of this market is there are many scammers out there to steal your money, your identity and your financial information. They can be in the shape of hacking scams, fraudulent companies, and fake softwares etc.
- Where round the clock trading work in your favor. Sometimes it can go against you because market keeps moving for 24 hours. If you fall asleep or couldn’t keep an eye on the market. It can hurt you a long way. Automated sotwares can help you in this regard but you can’t totally rely on them.
Top 5 Forex Online Trading Sites
Regulation CySEC, ASIC, MiFID
Instruments Shares, Commodities, Forex
Regulation CySEC, FCA, BaFin
Instruments Shares, Commodities, Forex, Precious Metals
Instruments Shares, Commodities, Forex, Metals, Oil, Indexes
Bonus $25, No Deposit
Instruments Stocks, Forex, CFDs, Bonds
Bonus $50 No Deposit
Regulation CySEC, MiFID
Instruments Gold, Currencies, CFDs, Stocks, BitCoins, MT4 Platforms
Forex Online Trading is a popular form of investment. It attracts the people in hope of earning big. At a glance, it is an easy way of making money with a huge exposure. There is no other business which can match this wonderful market to earn that big in a limited time frame. On the other hand, it is a game of extra money. There are too many risks involved where you can lose your money in the blink of an eye. Therefore, it is only recommended if you have a clearer picture of this volatile market and you can forget if you lose your investment.
However, nothing to worry as per making money online is concerned. Earning Stuff has many other proven and free ideas for you to make money online. Take a look at making money online with typing jobs, make money online with photography, make money online with YouTube, make money online with ad networks, make money online with teaching jobs, make money online by participating in online surveys, make money online by creating an eBook and much more.
Are you an experienced Forex trader or you are thinking about trading online? Come on guys, comment below, we are creating a panel of Forex traders and you are invited as an honorable member.