What is foreign exchange (forex) and how does it work?
"Make money playing on Forex!", "Up to 100% profit every day on the forex market!" - The internet is full of such ads. Is it really possible to make money on Forex and what is needed for this?
Forex (short for Foreign Exchange) is a currency exchange. The foreign exchange market is primarily considered the international money market - the largest and most vibrant financial market in the world. Its daily turnover exceeds 5 trillion dollars. This is more than the turnover of all national stock exchanges combined.
The participants in the foreign exchange market are the largest banks and central banks of different countries, investment and pension funds, large companies and private investors with personal capital. giant. Trades on this market start from 1 million dollars.
But forex is also known as the market where real currency is not bought or sold, but only trades are made, betting on the growth or decline of currency rates. This market is organized by specialized companies who deal in forex.
You cannot buy currency through a forex dealer. If you need dollars, euros, pesos or yuan, you can exchange them at a bank or on a currency exchange through a broker.
Forex dealers provide ordinary people to participate in the foreign exchange market. The bottom line is that one tries to predict what will happen to the exchange rate of one currency against another and concludes a transaction with a foreign exchange agent. If his prediction comes true, he earns - the dealer pays him. Otherwise, on the contrary, the bookie will debit a certain amount from its account.
At the same time, to start trading, as a rule, you do not need a lot of money or special equipment. It is only necessary to have access to the Internet and a trading terminal - a special program on the computer is enough. Recently, even mobile applications have appeared to access Forex. However, this does not mean that making money on Forex is easy, on the contrary, the risk of loss is extremely high.
What do you need to start trading Forex?
First, you enter into an agreement with a forex dealer and install the dealer's trading program on your computer, smartphone or tablet. This program reflects the rates of all currencies in which transactions can be made.
A forex dealer can use currency quotes from international currency exchanges, banks, Russian and foreign brokers, news agencies and other reliable sources. For a complete list of possible quote providers, see Basic Standard for Forex Dealers.
To close trades in Forex, you must transfer a deposit to the bookie's account. This amount will ensure that you will be able to fulfill your obligations in forex transactions.
The online program shows all your trading activities - conditional "buying" and "selling" currencies. But real money is only credited or debited from your account after you close the trade. If you correctly predict the movement of the exchange rate, the bookie will credit your account - your deposit will increase. If you do not guess correctly, the deposit will be reduced.
Deposits can only be withdrawn from the dealer's account after all trades have been closed. And you can top up your account at any time. It is important to remember that in the worst case scenario, you risk losing your entire deposit.
Also See: Can Forex make you Rich
How are transactions done in the forex market?
Before trading, you choose two different currencies - a currency pair. One of them is basic, the second is quoted. Your task: try to predict how the quoted currency rate will change relative to the base rate. If you are sure that the rate of the quote currency will increase, you can open an agreement to “buy” it. If you think it will fall - to "sell".
Usually the dollar is chosen as the base currency, you can choose any other quoted currency.
You have selected a currency pair - Euro and Dollar. The dollar is the base currency, the euro is the quote currency. For example, you expect the euro to appreciate against the dollar.
The euro is currently worth $1,213. You open an agreement to "buy" euros in the amount of $100. In fact, euros do not reach your bank account, but are reflected in the internal register of forex dealer transactions and on your balance in the program.
Let's say, in one day, the price of the euro actually rises to $1,223. You think it won't grow anymore, and you close the transaction. Thus, you take a profit: $(1.223 - 1.213) × 100 = $1. The Forex dealer will credit this to your real bank account - your deposit will be replenished. If the euro drops to $1,113, your loss will be: $(1.213 - 1.113) × 100 = $10. And vice versa, the forex dealer will delete this amount from your bank account.
It should be noted that a forex agent receives a commission for his services. For example, to open and maintain an account, connect to a trading program, execute trades, transfer funds to a bank account and other services. All rates must be clearly stated in the contract.
Is it possible to make money on Forex?
Theoretically it is possible. Making money on Forex is as real as playing on the stock market. Legitimate forex dealers are licensed by the US Central Bank to operate under strict and transparent rules. They must comply with the "On the Stock Exchange" law, the requirements of the Bank of America for foreign exchange traders. Basic standards for forex dealers and other regulations.
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If you can make an accurate forecast of how the forex market situation will change, you can make good money.
But according to statistics, players lose money on Forex 3-4 times as much as they earn. The reality is that it is very difficult to predict the movements of the exchange rate. The state of the foreign exchange market depends on many political and economic factors, the behavior of the world's largest banks, funds and companies. Even news and rumors affect currency rates.
If you're willing to take the risk, it's best to start with the theory:
- Learn how the international forex market works.
- Get acquainted with the methods of fundamental and technical analysis - they help predict the movement of any variable using mathematical models.
- Understand specifically about derivatives (derivatives, professionals also known as derivatives). After all, transactions with forex dealers are derivatives contracts for currencies or currency pairs.
- Read articles about stock exchanges and investments. Many books have been written on the subject of trading.
And before entering into an agreement with a forex agent, you need to carefully study the documents. Pay special attention to the risks when trading in the foreign exchange market that the bookie must warn you about.
Which strategy should you choose so as not to lose all your money at once?
Rule #1: Don't use a lot of leverage, especially if you're new to forex trading.
Let's say your deposit is $100. Forex brokers are ready to give you 1:10 leverage. That is, you can open a trade with $1000. The forex program will reflect the "buy" of $1000 worth of currency. If you want to open a trade for $5000, then you need to use 1:50 leverage.
You can use for one transaction not all of your deposit but only a part of it. For example, from a deposit of $100, lose only $20 and choose leverage 1:50. In this case, you can also execute a trade for $1000. And use the remaining $80 in the account for another operation.
If you guess the course of change, you can multiply your profit by this ratio. If you don't guess, you will incur a loss of the same proportion.
For example, you open a "buy" euro trade for $1000 with 1:10 leverage. If the euro rate increases by $0.20, then you won't make $20, but $200. But if you don't guess and the euro drops 0.1 against the dollar, you lose $100 - your entire deposit.
In other words, your potential winnings, but as well as your risk of losing money, increase in proportion to your leverage. Therefore, to get started, choose leverage in the range 1: 5–1:15.
Rule #2: Limit your margin - the amount you put into your trading account with a forex dealer.
After all, you can lose this amount at any time. It will not be possible to trade profitably all the time, loss is inevitable. But a forex dealer will not allow you to lose more than you have on deposit and plunge into the red. He will be forced to close the deal.
That is, your loss could be $500. But a forex dealer will not let you lose more than your real trading account i.e. more than $100. As soon as the euro/dollar rate drops by $0.02 (your loss will amount to $100), the forex dealer will immediately close the trade and reset the account.
True, losing all the money in the account is not pleasant enough either.
Rule #3: use a stop loss - get out of the trade automatically.
Forex programs often allow you to limit your losses when trading. This option is called stop loss. This opportunity is well worth using if you don't want to lose your entire deposit at once. Stop Loss allows you to automatically close a trade when the loss reaches a set limit.
Let's say your deposit has grown to $1000. And you don't want to lose it all in one bad trade. Then place a stop loss order - instructing the forex dealer to close the trade when the loss is reached, for example, $100. This way you can keep the remaining $900 of your deposit.
Unfortunately, the stop loss option is not available in all forex programs. If it's not there, you either risk the full amount or each time you withdraw money from a forex dealer's trading account and leave only a deposit there, without fear of being ripped off. pass away.
I decided to try it anyway. How to proceed?
1.Choose a Forex Dealer
Most importantly, he must have a license from the Central Bank of America.
Without a Russian license, the risk is not justified by anything. These are either outright scammers for whom you are sure to lose money, or foreign companies operating illegally in our country. And in case there is a problem, you will have to sue them in the country where they are registered. For more information on unlicensed forex traders, see the article "Illegal Forex: How Not to Fall for Scammers."
In addition to the license, a few more points need to be clarified:
- whether it is possible to undergo preliminary training before switching to trading;
- Is it easy to install a trading terminal on your computer or smartphone - a program or a mobile application;
- is there a demo version to understand the terminal operation and test your strategies;
- Does the technical support department work well: is there a hotline, online chat, advice on how fast to respond;
- what is the size of the minimum deposit (the probability of losing this amount is very high, so choose options with a small minimum deposit first).
2. Practice on a demo account
The demo account will allow you to understand how and by what means you make money in Forex, and will give you the opportunity to try out different trading strategies.
It is difficult to predict exchange rates based solely on open information about what is happening in different countries. So, to help players, there are programs that analyze the technical indicators of currency movements and help build a trading strategy. But the probability of error is still very large.
3. Open a real account
Have you practiced on a demo account? Have you worked through the different strategies you learned in the training, have you picked a few that work for you? Now you can open a real account.
You determine the amount in the account yourself, but a forex dealer may have their own restrictions on the minimum deposit amount. It is better to start with a deposit that you will not be afraid of losing.
Reality is not that your strategy, tested on a demo account, will be as successful as on a real account. You will have to spend extra time and money to hone it and develop your own style. You can use multiple strategies at the same time, so you reduce your risk a bit.
What if the forex dealer violates my rights or I lose all my money?
In forex, there is no guarantee of earnings. The amount you deposit with a forex dealer is not insured by the government. But what if you run into other problems - for example a licensed forex agent fulfills your order not in real time but delays or fails to return your required deposit - then contact Bank of America.
If you have signed an agreement with a company that does not have a license from the Central Bank of Russia, and it violates your rights, file a police report. Before that, gather all the documents you have: a contract signed with a fraudulent intermediary, money orders, screenshots from the website.
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💧Every user will have access to information and training videos to help them grasp the TCC system, mainly on how to gain practical benefits from it. This course starts with essential trading instruction, then moves on to the automated program and explains how to understand the signals generated by the system. It may also contain expert advice, advanced tactics, and regular webinars hosted by the product's designers. This amount of knowledge is manageable and each trader can acquire a specific skill set from this training, generating huge profits.
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