It is a job available to anyone with a computer and Internet access, but only few people really understand exactly what Forex trading is.
The commercial part does not require explanation. To carry out transactions is to exchange an asset for another, either in the market or in the Stock Exchange. Apples for oranges or Crude oil for US Dollars.
With this in mind, the word Forex or currencies is a term that commonly refers to an online market for forex trading transactions and other types of financial assets.
The currency exchange is a type of commercial operation that occurs daily in the international arena. Governments do it, companies do it and even ordinary people do it.
All the traders in the world carry out purchase and sale operations simultaneously, being connected to a network with their computers. This is the main reason why the Forex market is the market that worldwide with the most liquidity, the most accessible and inevitably, considered the most dangerous and infamous market.
¿How do online operations with Forex work?
The general logic is simple. A trader buys something that he believes will increase in value and sells what he believes will decrease in value.
For example, today the Euro is worth 1.2345 United States Dollars. The trader, with all his wisdom, believes that in the next 24 hours his value will increase, so he places a purchase order and waits. The next day, the Euro is worth 1.2395 US Dollars and the trader gives a closing order, ensuring a profit of 50 pips. How much cash are 50 pips depends on the volume of money invested by the trader in this operation. They could be 50c or they could be 50k.
However, reviewing the process in more detail reveals why things are a little more complicated than that.
Let’s start from scratch.
After a thorough investigation of the types of brokers, the accounts and the negotiation styles, an ambitious aspirant opens and finances a purchase and sale account. Now there are many trading instruments available to the trader to start Forex online transactions. A trader must prepare to trade currencies! Either he is trying to exchange a currency pair like EUR / USD, or before a special market situation, as a key level in the market trends (breakout).
It is not advisable to be in a hurry, although certain styles or situations of sale merit it.
The analysis is key and can include everything that the trader considers convenient. The most basic thing would be to analyze the perfect market conditions to start a sale, the money management, to assume the duration of intermediation, what is the forecast of volatility for the period in question, proximity of relevant economic events and most importantly, the conditions to finalize a sale. All these considerations should be taken into account before starting an operation.
Once again, analysis is key in online operations with Forex! It works well for the trader’s psyche and for the balance of the account. The ability to find, analyze, synthesize and apply information IS exchange currency. What makes the difference between success or failure with online operations is the domain of these disciplines.
Once everything is ready, the purchase transaction is carried out with just a click of the mouse in specially developed software, commonly known as the trading terminal or trading platform. Clicking is the least important part of the negotiation.
¿How does it feel to be a Forex trader online?
Forex online trading is a unique way to make a living.
There is no boss, there are no strict hours, there are no sales quotes to complete, there are no reports to be delivered on Friday and there are no presentations for Monday.
¿Do not you think it sounds good?
Well, do not rush! Nor is there a fixed salary or shared responsibility or credible work experience more than in the world of commerce. There is a lot to consider in case you are willing to commit.
Being a Forex trader is a one man show.
You are motivated and undertake only; is someone with a dream and confidence; you will never give up; you are the investor; you bring in the cash; the result is yours regardless of whether you have a gain or loss, you are the Directory; making decisions is your daily job with all the stress associated with it; you are simultaneously the Research, Development and Analysis department; you are aware of the economic world because otherwise you would be dead in the water; you are constantly looking for ways to improve your business; you are the legal department; It is your responsibility to ensure that your business operates within the framework of the law and under your protection; you are the accountant and period!
Lastly, you are the General Manager; you are the discipline that holds everything together. Supervising that all the aforementioned organisms comply with dedicating themselves to their tasks defines their success.
Being a Forex trader does not need to be all these things at the same time, but being a Forex trader consistently profitable if required.
If all this sounds like a work load, it is because it is.
¿What are the advantages of performing Forex online transactions?
You are in control! You decide where you want to live, when and how much you want to work. The word “unemployment” no longer causes chills and when a woman asks what she does for a living, she can respond with that key phrase from the movie “9 weeks and a half”: I buy and sell money.
Recessions no longer pose a threat to you! Why? because during a crisis, the prices of financial assets are constantly moving in one direction. This is called a trend. While the general public has a preference for positive trends, Forex traders do not care in which direction the market is going as they can still make money.
For example, in 2008 the real estate market is depreciating. Your national currency is losing value. While the price of crude oil rises continuously. Probably, this last fact escapes his attention, for being divorced, unemployed and living illegally in the suburbs of Detroit.
However, if you are a trader operating online, you can recognize these three trends and act: sell your currency (known as hedging), do not get rid of your real estate and buy the market the price of oil.
Remember: financial speculation is a basic capitalist freedom.
In a highly capitalized environment, Forex trading may be one of the few effective defenses available to ordinary people against tsunamis, earthquakes and economic eruptions. Assuming, of course, that you know what you are doing.
¿How is all this possible?
First, the spot market or spot market.
Spot market is a general term used by Forex traders to describe the online market where currencies are bought and sold at the current price and with immediate delivery – on the spot.
In modern times, none of this is particularly difficult to imagine. In online transactions with Forex, all are connected simultaneously in a noisy market, where the trader receives prices quoted by his broker and one of one or more liquidity providers.
Prices are defined by two forces in constant competition: supply and demand. When there is an excess of supply, the price of an asset is lowered. When there is an excess of demand, the price goes up. The more people buy, the higher the price and vice versa.
Second, Contracts for difference (Contract for Difference, CFD for its acronym in English).
CFD is another trick that transformed the financial market into what we have today.
In the times of Charles Dow there was no trade, only investments. The only thing available to people was to buy and hold the shares of a company of social prestige. In case a particular asset increases its value, it will have profits. However, in case the asset depreciates in value, it will be stuck with something that nobody wants to buy.
CFD allowed the trader to buy not only when the price of an asset increases, but also when it is falling. How? through the dominance over an unnecessary asset, therefore allowing the sale to be available to more people, thereby increasing liquidity and ensuring that there is more often a buyer for the seller’s descending stock. Applause for the ingenuity of the lords of Wall Street!