Forex market participants are the largest banks and central banks of different countries, investment and pension funds, large companies and private investors with huge personal capital. Transactions in this market start from $1 million.
But forex is also called a market in which they do not buy or sell real currency, but only make bets on the growth or fall in exchange rates. This market was organized by specialized companies – forex dealers.
Trader cannot buy currency through a forex dealer. If trader need dollars, euros, pesos or yuan, trader can exchange them at a bank or on a foreign exchange through a broker.
Forex dealers offer ordinary people to participate in the game on the forex market. The bottom line is that a person is trying to predict what will happen to the exchange rate of one currency in relation to another, and makes a deal with a forex dealer. If his forecast comes true, he earns – the dealer pays him money. If not, then the dealer, on the contrary, writes off a certain amount from his account.
What is the Forex market and how can trader make money on it?
The first thing a novice trader should understand is the definitions of the Forex market. The Forex market is, in the classical sense, the international currency market, in which a huge number of transactions are made every day. Access to this market can be obtained by anyone who has access to the Internet.
MTBankFX is the first banking forex platform in Belarus, created in partnership with the Swiss bank Dukascopy in 2016. On this platform, trader can make transactions with currencies, precious metals, stocks, bonds, stock indices and futures contracts for oil, gas, cotton, bitcoin and a number of other goods. In total, more than 500 different investment instruments are available on the site.
People who trade in the Forex market are called traders. There are two very simple principles at the heart of a trader’s earnings: buy low now and sell more expensive after a while (in the terminology of traders, this is called opening a Long position), or sell an asset now while the price is high, and then buy it back at a lower price (open position in Short). Yes, yes, the bank allows the trader to both buy and sell different goods (currency, stocks, etc.), even if the trader does not have them. This is called trading in non-deliverable OTC financial instruments. In order to make the principle of earning on Forex more clear, let’s give an example:
Before us is the Euro / US Dollar chart, which shows the dynamics of the exchange rate of these currencies. The trader analyzes the charts and the situation on the market as a whole in order to decide whether to sell or buy a currency. In our example, the trader decides to exchange euros for dollars at the rate of 1.10723 at the point indicated by the red arrow. And make a reverse exchange at the rate of 1.09947 at the point indicated by the green arrow. The difference between these points is 0.00776, which would be a profit of 7.7 dollars if the trader made transactions for 1,000 euros. Trader can read more about how to understand and analyze charts in the reference book “Graphical Analysis in 1 Hour” .
So, we have understood what the Forex market is and how trader can make money on it. Now let’s move on to the next part and find out how a trader gets the opportunity to start investing even with a small amount (for example, $ 100).
Marginal leverage in trading: its opportunities and risks
Having studied our example with a chart, trader probably thought that trader need a lot of money to trade Forex. But in fact, this is not the case, trader can start making transactions with only a few tens of dollars on trader account. This allows trader to make margin leverage.
Leverage is a kind of coefficient that shows how much money a trader needs to make an operation for a particular amount. The standard leverage for most categories of instruments is 100 to 1. This means that to buy or sell $1,000 on the market, a trader needs only $10 in their account.
This principle allows trader to earn large amounts, having a relatively small capital on trader account. But trader must always remember that the possibility of making a profit is inextricably linked with the risk of losses in case trader have analyzed the market incorrectly. How to learn how to properly manage risks in trading, we will tell in the next section.
What steps do trader need to take to learn how to trade Forex and manage investment risks wisely?
The first thing a novice trader needs to do is open a training Demo account , where trader can study the platform and practice analyzing the market and opening deals without risk, since trading will be carried out with virtual money for educational purposes.
If trader already have it, trader can proceed to the next step – learning the platform. To do this, our team has developed a training video instruction on the platform . The best way to master the platform is to watch the videos and repeat the steps on trader Demo account.
Once trader have mastered the platform, it’s time to start trying to analyze the market and study the trading strategy trader decide to use. Trader can try to use the recommendations from the guide “Graphical analysis in 1 hour” , or develop trader own trading rules. Here are some tricks that will definitely make trader investment safer.
1. The right choice of the volume of the transaction. The first task of a trader and investor is not to lose their money. Therefore, leverage should be used judiciously. Trader can use the following table:
As trading skills develop, the volume of the transaction can be increased.
2. For beginners, a medium-term trading style using daily, 4-hour and hourly charts is better suited. This will allow trader not to spend a lot of time on trading and make transactions more calmly and deliberately. With this style, a trade can be in the market from several days to several weeks.
3. It is advisable to use strategies where the expected profit (take profit order) is at least 3-4 times the expected loss (stop loss order). This ratio will allow one profitable transaction to cover several unprofitable ones.
4. The stop loss order can be moved to breakeven when the price goes into the profit zone a distance equal to the stop loss (for example, if the stop loss is $10, then in the event of a profit in the transaction in the amount of $10, trader need to move the stop to the opening price transactions).
5. Limit trader loss per trade. The loss on each individual transaction should not exceed 1-2% of the capital. With a capital of up to $500, it will be difficult to follow this rule, but with large amounts, it is a mandatory criterion for the safety of funds. So, for example, with a capital of 1000 dollars, the loss on one position should not be more than 10-20 dollars.
6. Limit the number of losing trades per day. It may be 2-3 transactions. If the limit is reached, it is better to postpone trading and return to it tomorrow so as not to get excited and continue working with a fresh mind.
Following these rules will make investments less risky and trading more thoughtful and calm.