5 BEST Copy Trading platforms in 2021
Forex, FX, foreign exchange or currency market: you have probably already heard one of these expressions. They all mean the same: a market where you can exchange currencies or bet on the price movement of currency pairs.
The forex market has several outlets, from currency exchange booths on the street to the currency trading desks of big banks. For a non-professional trader, as you probably are, the easiest and safest way to trade forex is by opening an account at a reliable online broker. The vast majority of currency transactions are conducted on OTC over-the-counter markets. An OTC market is a non-regulated market, where you have to assess for yourself how safe your counterparty is. When you travel abroad to an exotic country and you need to exchange some money, you would probably go to a bank branch instead of changing money on the street, right?.
This is how you minimize your counterparty risk. You have to do the same when you select your online broker for trading forex. You should always choose a reliable broker. Although it looks easy, trading with forex can be risky if you don't know what you're doing. By using high leverage carelessly, you can easily lose all your money within a couple of seconds. So you better start off slow, learn and open a demo account first.
If you want to learn more, check out our blog post about the best trading apps for learning. It is good to know that there is a difference between currency conversion and forex trading. The end result of a conversion is basically changing one currency into another. In this case, you exchange euros to pounds. When you trade with currency pairs there is no physical conversion.
In this case, you never convert your dollars to euros. If your bet was correct, the profit from your trade will be booked to your account in US dollars. If you were wrong, the loss will be deducted from your account in dollars as well. First of all, you need to understand what the bid and the ask prices are. If the price goes lower, you will generate a profit. The 'ask' price is the opposite. If you want to bet on the price moving up, you can open a trade at the 'ask' price. The mid-price is usually halfway between the two, but this is just a theoretical price that is not used for trading.
A long position is when you bet on the price moving up, while a short position is when you profit from the price going down. The spread is the difference between the ask and bid prices. In the example above, the spread is 0. The pip is the smallest amount of a currency pair. One pip is equal to 0. In case of our example, the spread is 5 pips, or 5 times 0. Leverage allows you to take bigger positions than the amount of money on your account. Imagine this as a multiplier of your profit or your loss. This can be as high as A lot is the standard number of units of a forex contract.
Forex Trading | Currency Trading | Trade Forex Online
It is usually , units of the base currency. The base currency is the first currency in a currency pair. A mini lot is 10,, a micro is 1, and a nano is units of the base currency. In forex trading, you can encounter different types of contracts: spot, CFD, forward and futures.
Best US Forex Brokers 2021
Spot and CFD contracts are traded by most people. A spot contract is by definition settled two days after the trade.
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Settlement means that the counterparties are converting their currencies between each other at the price of the trade made two days earlier. Imagine the settlement as a currency conversion made at a money exchange booth on the street. The only difference is that this happens two days after the price was agreed on. However, in most cases, the settlement doesn't actually happen, because spot contracts are rolled over before the settlement.
The rollover is done because when you are betting on the direction of a currency pair, you do not actually want to convert money into the other currency, you just want to bet on the price movement. The rollover ensures that the conversion will not happen. When your position is rolled over , your online broker closes your current spot position and opens a new one. This is not visible for you, but it has a fee, called the rollover or financing fee.
The rollover fee is calculated from the interest rate difference between the two currencies you are trading. In some cases, you may also receive a fee from the broker, if the interest rates you trade are in your favor. A forward forex contract is a contract made on the OTC market. The specifics of the contract, like the term, the price and the settlement are defined by the counterparties case by case. Since it wants to lock the exact exchange rate it gets in 30 days, it will seal a forward contract with a big bank at a fixed price, let's say at 1.
In this case, there is an actual settlement. A futures forex contract is traded on a regulated market, for example, on a commodity exchange, like the Chicago Mercantile Exchange CME. When you trade futures, your counterparty is the exchange and the specifics of the contract are predefined by the exchange. When your counterparty is a regulated exchange, you don't need to check your counterparty risk, as this is one of the safest ways of trading. However, the exchange requires a large amount of initial money for trading, so this is not suitable for you if you have little money to invest. As we said before, everybody has an opinion about the forex market, because it seems simple.
However, currency markets are among the most unpredictable ones in the world. Everything from monetary policies and government spending to politics and wars can influence the prices of currency pairs. Thus, it is difficult to predict which way they are going move. Nevertheless, economic calendars can help, so at least you know about the scheduled events that could have an effect on the forex market. You saw the details, now let's zoom out. Here are the top forex brokers in Saxo Bank is our winner, the best forex broker in Great trading platform.
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All are great choices. Watch out, forex trading can be risky. If you know enough and are good to go, pick your favourite and take the next step in your trading journey. Let us know what you think in the comments section. Still unsure? Use the broker finder and find the best broker for you.
Brokers will display live pricing for each currency pair that is available to trade. Keep in mind that trading Forex is very risky. Most traders lose money in the market, as you can see in many disclaimers on Forex websites. It is not recommended for new investors. Most Forex trades are done on margin , which means they are leveraged with loans.
This can improve returns, but also magnifies losses. Traders should be fully aware of the risks of Forex trading — as well as the risks of using margin loans — before participating in the market. There are many different brokers to choose from. Here are the most important factors to consider when making your selection. Choosing a broker that is regulated by the relevant financial authorities is very important to help avoid scams and shady companies.