Currencies are the financial assets available on the forex exchange. It is also called the foreign exchange market. The Forex market is an over-the-counter market. Traders buy and sell pairs of currencies among themselves. The peculiarity of the currency is that it fulfils a dual role in the landscape of the financial world since it is both an economic instrument and an economic indicator of states. In a way, currencies are the stocks of countries. The prominent players in the foreign exchange market are:
- Central banks;
- The states ;
- Commercial banks;
- Investment funds;
- Professional and private customers;
- Hedge funds.
Several factors impact the price of currencies, and therefore the foreign exchange market:
- Interest rates on bank loans;
- Major events: economy, politics, climate;
- The economic growth of different geographic areas;
- The supply and demand of a particular pair.
The example of a successful forex trade
A forex trader wants to open a position in the EUR / USD currency pair ( the price of the euro against that of the dollar). He opens a position at the price of 1.2400 / 1.2000 in buy. He speculates on the rise in the price of the euro against the dollar. After a few minutes, his forecast came true. The euro price continues to rise, and the dollar continues to fall. He decides to close his winning position at the next price 1.2420 / 1.1980. His position, therefore, took 20 pips. Depending on the amount invested and the spreads applied by his broker, he potentially made a fair amount of money.
If the forex investor had speculated on the downside, hence the depreciation of the value of the euro against the dollar, he would have opened a short position. If the price had fallen, as envisioned, it would have cashed in gains as well.
It’s advisable to read and compare brokerage reviews to get into details of trading conditions. Reading a Soltechx Review could be a good starting point.
Forex trading with a demo account: interesting for beginners?
There are various advantages to using the demo account for those new to forex trading.
First, it is a great way to take ownership of the online forex trading platform offered by a broker. This is an opportunity to discover all the features available in real conditions: charts, technical indicators, opening and closing positions, risk management (including take profit and stop loss).
Second, the demo account makes it easier to learn forex trading by ignoring the biases of trader’s psychology: fear of losing money, poor management of emotions following a losing trade.
Finally, the demo account makes it possible to make an objective inventory of the performance of the forex trading platform:
- completion time
- basic and advanced features
- the real cost of a forex trade with the potential gains.
The length of time to use a demo account before making a minimum real money deposit varies among traders and expert analysts. Everyone agrees that this is an essential step in preparing well before investing.