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If you were ever thinking about investing and researching the possible options, you have probably seen Forex as one of them. It is a quite common term nowadays, but in order to successfully invest in Forex, you need to be informed about its principles of functioning. Also known as FX or currency market, Forex is a complex “science” and there is a lot of information available online about it. However, not all the information is correct, and that is the reason why you need to find a reputable platform or broker.
What is Forex?
Forex – the foreign exchange – is a global marketplace for currency exchange. Different national currencies are traded against one another. If you think it is a very dynamic and fast-changing environment – you are right. It is one of the largest and most liquid markets – because everyone uses some kind of currency, right? As a Forex trader and investor, you need to learn how to take advantage of the fluctuations in the value of any different currencies. Simply said, you have to select two currencies and predict which one of them is going to increase in value against the other one. Then you invest and wait for the result. Your earning depends on the amount of money you wager on that trade, minus the commission of a broker.
Even though you can pair up any two convertible currencies, there are 4 most common pairs, which make up the majority of Forex trade.
- The euro and US dollar: EUR/USD.
- The US dollar and Japanese yen: USD/JPY.
- The British pound sterling and US dollar: GBP/USD.
- The US dollar and Swiss franc: USD/CHF
Of course, you can pair any of them up with Australian dollar (AUD), Chinese renminbi (CNY), Canadian dollar (CAD), etc. The order in pair is important, as the first currency in the pair (also known as the base) is the one you think will go up or down against the second currency in the pair. This second currency is called the quote or counter currency. There are many terms and rules that you will have to get familiar with, so we encourage you to start learning now.
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How to invest?
If you are not sure if investing in Forex is the right choice for you, we have good news. If you are based in the UAE, you can open a demo account and start doing Forex trading in Dubai with CFI Financial Group. It is completely free, and it will give you the first-hand experience of Forex trading – with no risks involved! The Forex market is available all the time, and thanks to the platform, you can access it anytime, anywhere. Then, when you are ready to start investing real money, you can deposit cash into your account. Be modest and start with low amounts. Some brokers have a minimum investment amount. Make your research and focus on one strategy. The amount you can earn is technically unlimited.
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Potential risks
As in every other investment business, there are certain risks involved. You are probably well-aware that the return on investment can’t be 100% guaranteed. Forex trading is not different in this matter. First, make sure to choose a reputable broker and avoid common scams. Then, learn the basics of Forex trade, and then deepen your knowledge by trying different options on your demo account or real account. There are many things you need to be informed about, and by the time, you will develop the necessary skills which will, at least theoretically, bring you profit. Some of the risks you may face are exchange rate risk (caused by changes in the value of currency), interest rate risk, credit risk, settlement risk, etc. Again, you will learn more about those risks and their specifics when starting your trading business.
In conclusion, Forex investing is a great and potentially profitable investment option. Of course, there are some risks, and you need to be well-informed, especially before investing larger sums of money that you can’t afford to lose. So, start with a demo account until you learn the basics, then for the beginning, invest the amounts which are not very big. When you feel more comfortable, invest more money. Do not feel pressured and hurry – the investment is not a quick way to get reach, but rather the long-term plan for the future. Together with your knowledge, your gains will be increasing as well, and you will become a successful Forex master.
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