Forex is an abbreviation for the foreign exchange market, also known as FX. On the foreign exchange market, people trade in currencies such as USD, CAD, EUR and many others.
What is Forex Trading?
A forex trade involves the simultaneous purchase of a quantity of one currency along with the sale of a quantity of another type of currency. So, for example, a trader might buy USD and sell CAD.
Forex traders attempt to profit off of the future changes in the relative value of various currencies, both in the short term and the long term.
How to Trade Forex
Unlike the stock market, which has a number of centralized exchanges through which stocks are traded, the forex market is decentralized. There are many exchanges at which a person can trade one currency for another.
In fact, a large amount of the forex trading isn’t done for investment or speculative reasons – tourists or business travelers need to exchange their native currency for currency of the country they’re travelling to.
To trade forex, it’s necessary to find a broker or exchange through which you can exchange your money for another type of currency. Once you’ve signed up and gone through a verification process (which varies by broker or exchange), you can select a pair of currencies, like Euro/Canadian Dollar. You pay a certain amount of money, which is converted into the other currency, with a small fee taken by the broker or exchange.
Best Forex Broker
The best overall forex broker is currently FOREX.com. FOREX.com offers strong customer support options and is intuitive and accessible to the beginning forex trader. It also offers a wide range of advanced trading options.
For highly experienced forex traders, certain other forex brokers may offer options and setups more suited to specific needs, but as an entire package FOREX.com is the best forex broker.
Best Forex Trading Platform
MetaTrader 4 is the forex trading platform which offers the widest range of support among forex brokers. This gives it an edge that makes it the best choice for a forex trading platform. It offers a collection of features that help traders to both analyze the markets and execute their trades.
What is Leverage in Forex?
The concept of leverage in forex trading is borrowing money in order to make a larger trade than your funds would normally allow. The lender is usually the forex broker, and the forex market is known for allowing larger leverage margins than many other types of trading.
With a leveraged trade, the trader puts up some percentage of the money needed to make the trade. For example, let’s say you wanted to a make a trade of Canadian Dollar/Japanese Yen with a value of $100,000. If you put up $1,000 your leverage ratio would be 100:1.
Best Forex Signals
The best overall forex signal is ForexSignals.com. ForexSignals.com will connect traders with a variety of resources to help them plan and execute trades, and also features an option to all for expert traders to operate your account according to your specifications.
Top Forex Brokers
As an overall broker, the two best forex brokers are FOREX.com and OandA. Both of these brokers offer a suite of services that make forex trading easy and understandable.
Another good forex broker for newer forex traders is Ally Invest. Ally has an easy-to-understand interface that facilitates trading for beginners.
TD Ameritrade is yet another strong forex broker, and is especially appealing for those looking to trade not just forex but also other investment vehicles.
How to Trade Currency
In its simplest form, forex trading involves choosing a currency in which you currently have money and specifying a quantity of that money. Then, choosing a second type of currency. The trade swaps your quantity of starting currency for an equivalent amount of the second type of currency according to exchange rate.
Leverage and other more advanced trading techniques can complicate matters, but the basics of a currency trade come down to this type of transaction.
How to Do Forex Trading
In order to do forex trading, you’ll need to sign up with a forex broker. The broker will be the one who actually makes the transaction swapping one currency for another on your behalf. The broker will take a small percentage or flat fee as a service charge for making the transaction.
If you want to become more sophisticated as a forex trader, you can use one of a number of tools and trading platforms which give you more data and analytics to inform your forex trading.
Best Forex Trading Software
MetaTrader 4 offers the best forex trading software. If you’re looking to become a serious or semi-serious forex trader, MetaTrader 4 has the tools you’ll need to develop your knowledge of forex markets and execute your trades.