Admirals brokers offer investment funds, Forex, Stocks, and commodities, among many other possibilities to start in the financial market. Thus, it is common for those starting to invest in variable financial markets to feel lost.
The forex market has become increasingly popular in the digital age, with global daily trading volumes rising from $5.1 trillion in 2014 to $6.6 trillion in 2020, making it an overseas investment opportunity.
However, Forex is a complex market that offers traders several benefits and potential pitfalls depending on their risk appetite and underlying investment strategy. This guide will cover the main advantages and disadvantages of trading forex.
Admirals: Explaining the forex market for beginners
Forex (or Currency, FX, or Currency Exchange transactions) means transactions with currency pairs that allow traders to react to the fall or rise of one currency against another currency in combination. Therefore, currency transactions always combine currencies as the underlying asset. Thus, the price of a Forex instrument is the price of a particular combination of currencies or currency pairs.
A sequence of two consecutive currencies separated by a period always represents the currency pair: [Currency1].[Currency2]. If a trader buys the [Currency1].[Currency2] pair, it means he’s buying [Currency1] and selling its counterpart, [Currency2]—for example, a purchase of 10,000 EUR.USD at 1.10 means buying 10,000 and selling 11,000.
It is imperative to have sufficient funds in your wallet to open a forex position or keep it open. This hedge commitment depends on the currency combination chosen. The more volatile the selected currency pair is, the higher the hedging requirement. These collaterals are also called margins. Since the margin is below 100%, you can trade with leverage in the Forex market. Thus, you can buy a significant amount of foreign currency higher than your current cash balance.
As a result of taking a forex position (both long and short), it is possible to cause a negative cash balance in a specific currency. As indicated above, each Forex transaction involves the purchase of one currency and the sale of a second currency. If the cash balance of the currency sold is insufficient, a debit item will appear in that currency balance. If the trader doesn’t close a forex position during the day but is carried over to the next trading day (the broker will hold it overnight), the debit interest will be due on the negative balance.
Admirals: What are other speculative markets?
Besides Forex, there are also have highly speculative and regulated markets, such as:
- stock market ;
- futures market (commodities, indices, interest rates, and currencies); and
- options market.
In the futures market, seller and buyer commit to trading a certain amount of financial assets or tangible goods at a future date. The predetermined price is attractive to investors who want to profit from asset price fluctuations.
A forward contract is established between the two parties in the options market. So, the buyer acquires the right (but not the obligation) to buy or sell an asset during a particular time.
Frequently asked questions
- Are there any currencies a trader cannot trade? The brokers’ offer of Forex trading varies. With such a broad market, it is impossible to cover it completely. In addition, specific national and international rules and regulations prevent certain currencies from being traded, such as the Iraqi dinar and the Vietnamese dong. Most importantly, laws may arise requiring brokers to remove certain currencies from their platforms temporarily.
- Are there any fees associated with investing in the Forex market? Generally, brokers do not charge any fees for transactions on the user’s account. Instead, they profit from the bid / ask difference – commonly known as the “spread.” However, if you leave your positions open overnight, you may be charged rollover fees.
- What’s the difference between long and short? Long (Long) or Buy (Buy) will benefit from an increase in the current currency price, while short (Short) or Sell (Sell) positions will benefit from a drop in the currency price.
- What are the forex trading hours? The Forex market opens at 22:00 GMT on Sunday and closes at 22:00 GMT on Friday (when the US market closes).
Conclusion: is it worth trading on the Forex Market?
If you have read this far, you already know what Forex is, how the Forex Market works, and, above all, what its risks are. So, stop, think and evaluate its pros and cons.
Trading Forex is not illegal, so if you decide that it is worth it despite the risks, try to study and understand how technical analysis works, for example, to improve your chances of success. In any case, we emphasize that there are no guarantees of earnings.