Forex Trading Overview
Foreign Exchange, or Forex, is traded on the Forex Market, the world’s largest, most liquid, and most volatile market in the world.
Trading occurs Over-The-Counter, or more commonly known as OTC, worldwide through the utilization of computer networks which connects all the different participants.
Forex is traded 24 hours a day, 5 days a week worldwide and in the major financial centres in the world including London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney.
To start Trading Forex, Malawian traders will need the following:
- A basic understanding of Forex, Financial Markets, Forex terms and definitions.
- A sound trading plan
- A reliable, reputable Forex Broker.
- A user-friendly, easily customizable, and reliable, licensed trading platform.
- Trading strategies that have been thoroughly tested.
- Access to news sources through which the world economy can be analysed.
There are various reasons why Malawian traders should consider trading Forex, with a few of these reasons outlined in this article.
1. Largest Financial Market
The Forex Market sees around $5 trillion in transaction per day, which amounts to around $200 billion an hour and even down to $50 million every second of the 24-hour day, and it is not about to recede any time soon.
With major players such as commercial banks, central banks, money managers, and hedge funds, the Forex Market is set to be one of the markets that thrives the most despite economic situations on a global scale.
2. Anyone can trade Forex
Forex is not just traded by major players such as banks, it can be traded by anyone and everyone. Malawian traders can easily gain access to the Forex Market once they have selected a Forex Broker through which their trading activities will occur.
Forex Trading can occur with a bare minimum when opening an account with a broker, depending on their trading conditions. Without having a heap of start-up capital, Malawian traders can trade Forex, by making use of leverage.
3. High volume and liquidity
With already having covered the value of trades in a day, it is clear that the Forex Market is massive, and this results in liquidity and high volumes.
With these aspects, trades are executed much faster. Even if one market closes, another one opens and due to different time zones, markets often overlap one another.
Even though there are some quiet times, generally speaking, there is always a trading opportunity. Due to the high liquidity, transaction costs are a lot lower than when trading other financial instruments.
When volatility is especially high, traders who have trading strategies based on such market conditions stand a significant chance of greater profits.
4. The Forex Market is not owned by anyone
There is not a single person, or institution that has the ability to control the market prices for an extended amount of time in any way, and there are no middlemen involved. Despite the fluctuations in prices, the market calibrates itself quickly, evening the odds.
The Forex Market is decentralized, meaning that Malawian traders can trade directly with another participant in the market with the broker that the Malawian trader chose merely facilitating the connection between participants.
The driving factor behind the Forex Market, amidst other things, is the economy, neither a person nor a company.
5. The Forex Market is open 24/5
Due to the different time zones globally, the Forex Market never sleeps, with the exception that there is a weekend gap. Although this is the case, Malawian traders need to be aware that there are charges with regards to positions held open.
The vast majority of brokers charge overnight fees, which is otherwise known as swaps or rollover fees, which the trader will have to pay should they have a position open for longer than a trading day.
For traders who are Muslim of Faith and follow the Sharia Law, there are numerous brokers who have an Islamic Account option as interest is not charged on these accounts for positions held open longer.
6. Lower Transaction Costs
The retail transaction cost is known as the spread and it is the difference between the bid and ask price on a specific currency pair. There are numerous brokers who offer competitive, tight spreads that start from 0.0 pips.
The spreads charged by brokers can either be variable, floating or fixed, where fixed spreads do not change, and floating spreads normally change according to the market conditions.
It is imperative for Malawian traders ensure that they get the most competitive, tightest spreads offered when evaluating brokers through which to trade Forex.
Leverage is a tool offered by brokers to help traders open more positions despite the initial deposit on their trading accounts. This offers traders the chance of great profits, but if used incorrectly, or abused, can lead to substantial losses.
Leverage is determined by the broker, the regulatory entity that the broker is authorized by, and several other factors. Brokers often divide their leverage between types of accounts and the financial instruments that can be traded.
Often Forex may have higher levels of leverage as opposed to other financial instruments.
8. Great potential for profits
Malawian traders have the opportunity to make a lot of profits, although profits are not always guaranteed with every trade and it depends on different factors such as the market condition, the trading strategy, the ability to predict price movements, and more.
Traders need to thoroughly research different trading strategies that can be used in the Forex Market in various market conditions, should the market volatility have greatly increased, prices are moving in a particular direction, or chance of a pullback, and more.
There is no holy grail of trading strategies that will guarantee success, and traders will have to explore trading strategies that work for them and remember in the pursuit of profits, the risk of losses is always present.
9. Variety of trading options
Depending on the currency pairs offered by the broker, Malawian traders have an array of currency pairs which can be traded ranging from Forex Majors, Minors, Exotics, and Cross-pairs.
In addition to this, there are three Forex Markets which can be traded in namely the Futures, Options and Spot Forex Market. Of all three, the Spot Forex Market is the most liquid option as currencies can be immediately traded by using the existing market price.
10. Forex Trading is exciting
The Forex market is subjected to various conditions that can change in an instant, such as economic conditions, which are the driving forces behind price movements and fluctuations.
There is constant change and Malawian traders who want to trade Forex need to ensure that they stay up to date with financial news and indicators that may lead to prices changing.
Through doing this, trading strategies can be adjusted accordingly to ensure greater chances of profit and minimize risks of incurring substantial losses.
There is a vast amount of different individual reasons why people start trading Forex, and these are but a few reasons why Malawians should trade Forex.
Forex trading may seem intimidating at first, but as Malawian traders learn about Forex and how it is traded through using educational videos, guidelines, demo accounts, and more, traders will find that it is exceedingly simple and can result in great profits.