Top Things To Know Before you Start Forex Trading
Nowadays as a result of technology advancement, forex trading is open to retail traders just like you and I as opposed to the earlier years when the trading of foreign exchange and hedging could only be accessed by big corporations and institutions. Forex trading basically involves buying and selling of different currencies. Most of the time, prospective forex traders are usually not equipped with the right amount of information before they start forex trading and this is a major cause for concern.
The first thing to note is that forex trading is not essentially for everyone and if you want to trade, you have to make a conscious effort to understand the decision you are about to make before you make the plunge. If you are want to start trading forex, here are a few things you need to know before you open your forex account.
- You need to understand transaction cost
In forex trading you have only one transaction cost to cover as opposed to trading stocks where you have two. There are also no commission charges unless it is on ECN you are trading on. The lack of commission charges is the sole reason why there is lower transaction cost
- In forex trading, you do not own any physical stock
Unlike when you buy stocks, there is no physical currency that you own when you are doing forex trading. When you are doing forex trading, the currencies are just recorded electronically by your broker.
- Forex trading uses leverage
The basic standpoint of forex trading is leveraging, you have to understand the act of leveraging as well as the risks before you go into forex trading.
- Forex trading requires extensive research
Before you start forex trading, it is important that you research and have list of the pros and Cons of your trade. You also have to fully understand the risks to make good decisions. Forex trading is basically about understanding the risks rather than following instinct or hype.
You have to ignore the general hype about forex trading and understand that the forex market is a huge market that gives good returns and poses certain risks. It is however important that you take calculated risks when forex trading to avoid losing it all.