If you’re unfamiliar with Forex trading in 2021, then you might be missing out on some golden investment opportunities that might just set you up for an even more prosperous future. While many have played it safe over the years and stuck with savings accounts and ISAs – which offer minimal growth by comparison – an increasing number of first-time investors are dipping their toes into the waters of Forex trading this year, looking for better places to stash their cash for the highest potential gains.
There is, of course, a certain level of risk involved when it comes to investing on the Forex market, but for those who can afford to lose a small fortune for the potential to grow it substantially, it’s not enough to discourage them. If it sounds familiar, then now is the perfect time to learn the ropes of Forex trading and start putting your money where your mouth is this year. Due to the high volatility involved, it’s always wise to proceed with caution, but with the right strategy and armed with the right knowledge – and the willingness to play the long game – your bank account could be looking even healthier in years to come.
The experts at leading brokerage research firm ForexToStocks evaluated more than 50 Forex trading platforms with its proprietary system, looking into areas like operating licenses, years of operating history, and investor safeguard, and found forex.com, IG, and Swissquote the most trustable trading platforms. Here, we asked them to demystify the topic for newcomers to Forex trading – so read on to find out all you need to know.
What is Forex?
Forex – short for Foreign Exchange – describes a global, decentralised market for the trading of currencies, and determines foreign exchange rates for each of them. It includes all aspects of buying, selling and exchanging currencies at current or determined prices.
The Forex market reached an eye-watering $6.6 trillion in daily transactions in April 2019 – up from $5.1 trillion just three years earlier – and that number continues to climb, with the US dollar standing strong as the most traded currency and making up nearly 90 percent of all global trades.
In recent years, Forex trading has become one of the biggest and strongest markets globally, and is also one of the most technologically advanced. Because it is an ‘over the counter’ market, traders can make their moves anytime, anywhere with the help of a smartphone app – with no need to be in a physical location in order to do so.
Because the market is so volatile, it is considered to come with a high level of risk attached, but experienced traders have been known to turn this to their advantage by profiting from both positive and negative fluctuations. Due to the highly advanced software that is used today, it is now possible to watch such fluctuations in real time, which has given traders a vital advantage. When a political event occurs – like Brexit – it can have a dramatic effect on the foreign currency exchange, and now, traders can understand what this is almost straight away.
Widely considered to be the market that never sleeps, foreign currency exchanges have actually been taking place since as far back as 259BC. It wasn’t until 1944, however, that the Bretton Woods Accord was signed, which facilitated the fluctuation of currencies within a small range. Fast forward to 1971, when a free-floating currency system was introduced, and you have the market as we now know it.
Since then, innovations and technological developments have continued to advance and transform Forex trading, and today, it is more accessible than ever. While once it was considered a pursuit for expert traders alone, it is now just as favoured amongst newcomers looking to make a buck, and its popularity continues to grow.
If you’ve ever travelled abroad on holiday, then you’re likely familiar with exchanging your own money for notes in the local currency. Meanwhile, if you have ever made a purchase from overseas, the fee you pay will have been charged in a foreign currency – so the instances of currency exchange are taking place all around us each day, despite the fact that it’s something we often barely notice.
What impacts exchange rates?
Currency prices fluctuate daily, although some have been known to maintain an elevated level of value above others for many years. Nonetheless, many factors can impact current rates, including government influence -– but it largely comes down to each individual nation’s economic performance at the time, as well as the interest rates of its central bank.
Higher interest rates increase the value of a currency, and attract a greater number of investors looking to make trades and invest in the relevant countries.
The bottom line
Whilst it’s impossible to fully understand Forex trading from a quick read, getting to grips with the basics will set you off on the right path to success. However, it is wise to do thorough research before getting started and ensuring that you can afford to make a loss. For many, the adrenaline that comes with Forex trading is just as exciting as the potential boost to their bank account – but as always, it pays to assess any risk with caution before going all in.