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Are you planning to trade in the foreign exchange markets in order to raise capital for your business? In other words, are you planning to engage in forex trading? If so, you need to educate yourself about a few basics first.
The foreign exchange market is the largest of all the world’s exchange markets in terms of the volume of trading. Large companies as well as traders at many levels reap profits from forex trading.
Who Are Forex Brokers?
Forex brokers are companies that provide forex traders with online platforms where they can buy and sell currencies.
Before the trade of foreign currencies was digitized, forex trading was the exclusive preserve of large financial institutions. The Internet and personal computers changed all of that. During the last two decades, retail forex brokers have risen to the occasion.
Forex trading is a market that now commands a large market share. To match the rising need, large numbers of forex brokers have flooded the market. Each one of them claims to provide the best forex trading services to traders all over the world.
Therefore, a beginning forex trader can have difficulty discerning one broker from another. Which ones are authentically good? Which are legitimate? You cannot tell just by looking at their website. Therefore, if you’re considering forex trading, be sure to carry out some research before you settle on a specific trading platform.
The safest way of choosing the ideal platform is to choose one that is compliant with existing forex trading regulations. Legitimate companies will indicate their membership registration number and other details clearly on their website. For example, Rakuten Forex is a good example of a company that is registered and regulated.
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Types of Forex Trading Accounts
To begin forex trading, you will need to open a trading account in a trading platform or with a forex broker. Look for a provider who offers trading accounts for free to beginners. Eventually, of course, you will need to pay a fee. The cost will depend on the policies of the trading platform you have chosen.
You should also know that there are different types of accounts, depending on the trader’s needs. The following are the main account types:
A standard account is the most common type of forex trading account. A standard account allows access to basic currencies in amounts up to $100,000. However, the rules of margin and leverage apply with a standard account. Therefore, even if you have only $3,000 in your account, you can still place large trades with this type of account.
Because of the relatively high investment required to place a trade, a standard account has better returns from forex brokers. This translates into more income for the forex trader. On the other hand, the main disadvantage of this type of account is that many forex brokers will ask for a starting balance of around $10,000. For beginners, this can seem like a high minimum.
Managed Trading Accounts
As the name suggests, this is a type of account in which an account manager makes the decisions about when to buy or sell. In other words, a professional manager assesses all the possible risks and profits and makes decisions on your behalf, using your capital.
Having a forex expert run an account on your behalf is definitely a plus for many forex traders, especially beginners. The main drawback of this type of an account is that it requires a high minimum starting balance. Additionally, it requires a periodic account maintenance fee.
Mini Trading Accounts
These are accounts that allow traders to place trades in small amounts. This type of account does not have high minimums. It can be ideal for beginners, especially those who feel skeptical about forex trading. This type of account is low risk as well. It is good for investors who have a low starting capital. There are platforms that allow mini trading accounts with as little as $200.
Demo accounts should be your starting point with forex trading. That’s because these are virtual accounts where you can place trades using virtual (fake) money. These accounts are good for practicing and developing skills and strategies before making an actual investment with real money.
If you would like to try your hand at forex trading, be sure to do your research first and keep these basic points in mind.