We may look back on 2020 and see it as the year that took forex trading to even greater heights. Already the most active trading space in the world, forex benefited from more traders seeking markets outside of stock exchanges throughout the height of the COVID-19 pandemic. This means in part that 2020 brought new people into forex. And so, with many trying out the currency trade or at least exploring it for the first time, we’re going to cover some of the most important things to know in the early going.
4 Major Factors to Keep an Eye on for Forex Trading
1. Market Basics
Naturally, the fundamentals and basics of the forex market come first. These include things like basic terminology, how and where trades are made, and the history of the market, to name a few. But fortunately, developing an understanding of all of this is fairly straightforward when it comes to forex.
It’s a market in which currency pairs denote relationships between two currencies, and can be traded as assets affected by those currencies’ shifts in value. This basic definition, coupled with a few specific terms, methods, and strategies, will give you a general feel for FX.
2. Leveraged Trading
Another thing that’s very important to understand if you’re looking to establish a more comprehensive grasp on forex is that it is often traded with leverage. This is a simple concept by which traders can amplify their trading resources, and accept the added gains or losses that follow.
So, to give a very simple example, if you’re trading with 5:1 leverage, you can invest $10 but trade with $50. That way, despite only putting in $10, you can buy $50 worth of a given currency pair, and collect all of the profits from the investment if it pays off. The risk, with leverage, is that losses are handled the same way.
3. The CFD Option
It is also worth looking into CFD forex trading, which is a means of investing in currency that falls outside of the straight purchase and sale of currency pairs. Favored among those who prefer not to take ownership of assets or hold portfolios, CFD trading facilitates speculation on the same assets.
Through this method, you put money into a contract, which is drawn up to represent where you believe a currency pair’s value to be heading. If, when the contract ends, the asset moved in the direction you anticipated, you earn a return on your buy-in.
4. The Involvement of Bitcoin & Blockchain
Bitcoin and the blockchain have not always had much to do with the forex market. But because the lines between fintech and FX are increasingly blurring, it’s worth knowing the role these technologies play. Bitcoin is now accepted at some FX trading platform as a currency with which you can invest in currency.
And the blockchain is being used more and more by banks and financial firms to facilitate cheaper and faster forex transactions. Neither affects the other trader a great deal just yet, but it does appear likely that we’ll see more bitcoin and blockchain involvement in FX moving forward.
Understanding these factors will help you to more fully understand a market that appears to be gaining even more popularity.