In order to be an effective trader it is important have a thorough knowledge into all workings of the foreign exchange market. You must understand what the market is, how it operates and what your role is as a foreign exchange trader. You will only truly benefit once you obtain this detailed information.
Defining features of the foreign exchange market
The first detail you need to look at is how the foreign exchange market differs to the other financial market. The main competitors that the forex market is up against are the stock market and the options market.
- The forex market is open 24 hours from Monday to Friday. You are able to trade at any time you want, but this does not mean that you should.
- The forex market is decentralised and largely unregulated. This means that there are fewer rules that you need to follow when you are trading. With the stock and options markets you have to adhere to all the rules of the central body. As there is no central body with forex you do not have these rules.
- When you trade on the forex market you do not have to pay exchange, brokerage or clearing fees. The fees that you pay to the broker are calculated as a spread when you trade. This means that there are no additional charges.
- You can easily buy and sell on the market. The retail forex market is where all individual traders will work and there are many retail brokers. The trading platforms that these brokers offer are generally easy to use and very user-friendly. If they are not then people will chose a different broker.
- The only limit you have on the volume you can trade is how much you have in your trading account. With other markets you may be limited to a certain volume of trades this is not the case with the forex market.
Making and losing money on the foreign exchange market
It is very important that you consider whether you are going to be making or losing money. All traders will lose money at some point on the forex market. The amount you lose will vary depending on the risks you are taking and the steps you are using to limit the losses. It is very easy to make money on the forex market if you understand what you are doing. This is why you must have some form of training before you trade live.
Forex training is available in two primary forms, the online courses and the individual mentoring programmes. The online courses are either paid for or free of charge and differ in what they cover dependent on price. It should be noted that modules covering the development of trading strategies and how to conduct forex trading analysis (both fundamental and technical) must be present. Without these skills you are sure to fail as a trader.