People usually traded with currencies only when they were traveling so that they can easily purchase goods and services abroad. Nowadays, due to the advancement of technology, and fintech, in particular, as well as, trading markets, forex trading is used for a variety of other purposes, among which can be making profits.
This activity, which very much like buying and selling stocks or bonds or futures, can sound complicated to some users. That’s why they hire forex brokers to help them out. In fact, we’ll explore their role in the forex trading market. But, first, let’s discuss forex trading! So, sit back and take some notes…
How the Forex Market Operates
The forex market is the one place where different currencies are traded – euros for dollars, pounds for yens, and so on. Whether it’s for commerce, trading or just a part of the tourism industry, it’s present in almost all major cities.
What’s characteristic of this market is that you can’t find it in one place, as we mentioned. A central meeting place doesn’t exist. Instead, traders get together thanks to a network of computers and they make all the transactions online. This type of trading in financial theory is known as over-the-counter trading. Further, the market works 5.5 days a week and is open all day long.
Speaking in the most elementary function, the forex market as a place where people exchanged one currency with another has been around since countries started using coins and practicing international trade.
On the other hand, if you’re looking at the contemporary idea of the forex market as a means of financially benefitting, among other things, it’s a very modern idea. That’s why people’s interest in the topic has peaked recently. Simply put, it’s a new type of market unlike the stock market, which has been present a while.
In the 1970s, the biggest currencies in the world began to intensively rise and go down against each other. And as the value of each currency followed its own path, people started exchanging more and more.
Benefits and Challenges of the Forex Trading Market
The positive sides of the FX trading market are very easy to understand even from afar. To begin with, they work twenty-four hours following time zones. Plus, the market is fully functional in all the major financial cities where the stock market is well-established.
Another pro aspect is liquidity. If you raised your eyebrows at this word, don’t worry, we’ll get to it in a bit. Moreover, the forex market is among the top markets in the world regarding a large volume of transactions. That makes the market very liquid. To be more precise, you (or your broker or another institution working on your behalf) can sell a currency in a couple of seconds. That’s because it’s easy to find another party that’s willing to buy from you. The same is applicable if you want to buy a currency.
Since it’s a modern invention, the forex market isn’t exactly standardized in all countries in the world. That can mean that transactions can be pretty complex and loaded with risk.
So, the challenge for someone who wants to participate in the FX trading market may be the fact that they need extensive knowledge of finances and economics. They should grasp the bigger picture of the whole topic. On top of that, they should be familiar with the different regulations of different countries, too. For that reason, many traders don’t operate on their own but hire brokers or other intermediaries, which we’ll move onto shortly.
Finding Reputable FX Trading Brokers
After the basics of the market, we believe that it’s time to show you a few tips for finding the right broker for you if you prefer someone else to do all the job for you. Finding reputable FX trading brokers for Americans, and pretty much in any other country, individuals have to look deeply in the profile of the broker to understand what and how they do what they do. The truth is that you can’t always tell a reputable broker from a broker you can’t trust.
- Check if they comply with the current and relevant regulation – Don’t let the fancy-looking website persuade you in the capabilities, security, and the legal status of the broker. With that being said, you should see if the broker in question is a member of the National Futures Association (in America) or the complementary body in other countries. Being a member of this association means its members are subject to the United States Commodity Futures Trading Commission (in the State) or the relevant body in other countries. This information is often found in the ‘About’ section on the broker’s website.
- Get information regarding the customer service – If you have in mind that the market is open all day long, you may need to consult with your broker at all times of the day. If the broker doesn’t have a customer service you can rely on, all of that goes down the drain.
- Find out the details – Many things go into the making of a successful and professional broker. And individuals should understand even the tiniest details regarding their work. That may include but isn’t limited to the leverage they operate with, as well as the margin, size of the original deposit, their trading platform, the process of withdrawing and depositing, how much they charge as a commission and other potential costs, and similar.
Some Final Words
Whether you think you can handle the forex trading market all on your own or you’d like to do it with a broker, the bottom line is that the market is going to expand even more. And more and more people will use it to increase their profits.
So, what do you make of it? Have you participated in the forex trading market or do you plan to? Feel free to tell us your opinion!