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How To Get Started On The Foreign Exchange Market

Trading on the foreign exchange market can be thrilling. It’s a huge market and transactions sum to many billions every day. However, for those that are new to trading, the forex market can be daunting.

That’s why it’s always a good idea to get educated beforehand.

Understand The Lingo

Like most specialised and professional fields, forex trading has it’s own internal language. Its purpose is to allow those with fluency to communicate more efficiently with each other. However, for the rest of us, it can seem like a wall of words that is as incomprehensible as a baby’s babble.

Learning what terms like exchange rate, base currency and quote curries mean is an important starting point. The base currency is the name given to the currency that you already hold. The quote currency is the name of the currency that you’re looking to buy with base currency. And the exchange rate is the number of units of the quote currency you can buy in exchange for one unit of the base currency.

As you expand your dictionary, you’ll learn more terms, like what it means to take a long or a short position, and the meaning of the word “spread.”

Make Use Of Binary Options

Binary options are another way that you can play the foreign exchange market. Essentially, they are an option instrument with two possible payoffs, hence the term binary. And both these payoffs are set at some predetermined value. Usually, one of those values is $0, and the other can be anything, so let’s just say $200. Which value you get returned to you depends on whether the asset behind the option exceeds what those in the industry call the strike price. It’s essentially just a threshold price over which you’ll have the $200 returned to you.

Low Deposit Binary Options tend to be a little more expensive for traders. But they’re also a lot more forgiving. One advantage over regular spot trading is that they cap the losses. Everybody knows beforehand what the costs will be. You’ll either lose the money you put into the option and receive $0 or you’ll pocket the $200. Hence, the most you can lose is capped.

Investigate What Currency You Want To Buy And Sell

For most people, this is the most exciting part of the job. It’s all about predicting what will happen to the value of currencies in the future to make a profit today.

Suppose you expect the Bank of England to raise interest rates. This should lead the pound to appreciate relative to other currencies. So you might want to buy the pound on the cheap now, and then sell it when it’s more expensive, thus pocketing the difference.

But you don’t just have to keep track of monetary policy. Perhaps you suspect that a regime in a particular country is unstable. This would be a good time to sell any currency for that country. Countries that are unstable often have high inflation and depreciate on international markets. You can always buy the currency back when it’s much cheaper, again pocketing the difference.