How Does Forex Trading Work? Check Out This Beginner’s Guide

There are a million and one ways to make money in this life, and one of the best ones is Forex trading. You’ve perhaps heard of this term before, but what does it mean? And how does it work?

Some of you are doubtless wondering if you need to go somewhere to make such transactions. Others might be thinking it’s something only banks, or the wealthy can do. It might surprise you to learn that anyone – even you – can partake in Forex trading!

In a nutshell, you buy and sell currency to make a profit. It’s the same as trading in any other commodity. Sometimes you’ll make lots of money, other times you might make a loss. Still, Forex trading is a less risky way of building up your pot of money. So, if you’re interested in finding out more, check out this beginner’s guide:

Tell me more about Forex trading

In layman’s terms, you are buying and selling currency on a trading platform. It’s just like buying goods at a wholesale price, and selling them to consumers at a higher retail price. You’re just dealing with money rather than physical goods.

There are various combinations of currencies that you can trade. Some of the most popular ones are as follows:

  • Euros and US Dollars (EUR/USD);
  • US Dollars and Japanese Yen (USD/JPY);
  • British Pounds and US Dollars (GBP/USD); and
  • US Dollars and Swiss Francs (USD/CHF).

Of course, there are plenty of currencies you can choose. But, the ones I’ve listed above offer the most liquidity. At this point, you might be wondering why you’d trade in currency as opposed to something else?

The answer is simple: there are fewer risks. Let’s talk about buying and selling company shares, for example. Prices are more volatile, and you have to spend more time making accurate predictions.

Currency is a better trade because you have more time to assess the market. Whereas with companies, something like reported sales figures could cause share prices to tumble.

How do you buy and sell currency?

If you’ve got small amounts of cash to exchange, you could do so using a bureau de change kiosk somewhere. The only downside to that approach is that the rates are seldom favorable in the long term.

The better option is to use an online trading platform, such as the ACM Gold Trading website. That way, you can do Forex transactions from the comfort of your home. Another bonus is you don’t have to carry around large amounts of cash with you.

When you use an online system, transactions get done via electronic means. You also have the potential to exchange thousands of units rather than tens or hundreds.

Which online trading system should you use?

As you may have guessed, there are plenty of websites you can use for Forex trading. But, which one should you select? Here are a few ways to narrow down your choices:

  • Use a trader in the same country as you;
  • Ensure they are a legitimate company;
  • Don’t use a site that doesn’t offer encrypted transactions; and
  • Try to get personal recommendations from friends and family.

Good luck!

About Peter Christopher

Peter Christopher is the Editor to Finance care Guide and a guest columnist for many blogs that deals with financial issues. He has devoted himself to full time speaking, writing and consulting on personal finance management. Visit him on Google Plus and Twitter.