The majority of new traders will turn to the forex market as an easy way to earn lots of money fast. While this market is the largest and most lucrative market it is not a get rich quick scheme. Despite the forex market having a daily turnover of $4 trillion, traders will experience detrimental losses. In fact, there are few who make a steady profit off this market. However, if you are thinking of becoming an FX trader there are certain factors you should be aware of. This article provides traders with basic information about online FX trading.
Online FX trading terminology
When entering the forex market you will notice many strange terms being used. This is economic and forex jargon which must be learned if you are to be a successful trader. Below are some frequently used terms.
- The exchange rate – the value of one currency when compared to the value of another currency.
- The base currency – the first currency listed in a currency pair. This currency is the one you will be selling.
- The counter currency – this is also known as a quote currency. It is the currency you will be buying and is the second currency in a currency pair.
- The ask price – this is also known as the offer price. It is the price your forex broker will sell the base currency at. The forex broker will always try to get you the best ask price possible.
- The bid price – this is the price at which your base currency will be purchased by the forex broker. When purchased they will provide you with a number of units of counter currency.
- The short position – this means you will be buying the quote/counter currency and selling the base currency.
- The long position – this means you will be selling the quote/counter currency and buying the base currency.
- The spread – this is the different between the base and the counter currency amounts.
Obtaining an online FX trading account
When looking at trading the online FX market you will be required to open an online FX trading account. These accounts can be opened via online forex brokers. However, you must do your research before registering with a forex broker as you will be trusting them with your trading funds. If the broker is located within a country with a governing authority you must ensure that they are registered with this authority. This will ensure that they are reliable, trustworthy and reputable.
FX trading currencies
One of the first steps to take when trading is to decide on a currency pair. New traders are advised to stick to major currency pairings as it is easier to find information on these currencies. However, the amount of data available is only one consideration to make. Other factors to note when choosing a pairing include:
- Economic reports
- The country’s political situation
- The movement of the currencies
- The trade balance of the country