Modern-style retail foreign exchange trading using platforms is something that developed in the 1990s, but it didn´t really catch on until fast and reliable internet connections became the norm for private households. Today, retail FX trading can even be carried out on smartphones and tablets – you no longer need to be seated by your stationary computer screen.
Today, highly advanced trading platforms are available online and even small-scale hobby traders have access to complex tools and features, and a wide range of financial instruments. Also, technical analysis trading is no longer limited to a few specialists and there are plenty of trading platforms that come with a huge array of charting tools and other helpful aids for the technical traders.
Retail trading is still only a tiny fraction of the overall FX market, but it is growing each year.
How can I get started with FX trading online?
- Chose an FX broker (FX trading site.)
- Sign up for a Free Demo Account. In a Demo Account, you trade for free using play-money. This is a great opportunity to see if you like the trading platform, check out the available instruments, play around with various trading strategies, and so on. If you don´t like the experience, you can simply stop and haven’t lost any money in the process. You can pick any other broker online and have a go with them. By now, you know a bit more about your own needs and preferences when it comes to what a broker has to offer and what kind of platform features you want, so it will be easier for you to locate the right choice for you.
- Make a first deposit and start trading using real money.
What is the FX market?
The FX market, also known as the Forex market and the Foreign Currency market, is a decentralized global market for currency trading. It is the largest market in the world, but it is not one specific market (like the New York Stock Exchange). Instead, the FX market is made up by a myriad of huge, large, mid-sized and small markets around the globe. Certain financial centres function as hubs in a mesmerizing network that includes everything from large international banks to retail FX brokers.
Foreign exchange trading is a very old practice, but the enormous modern FX market of today began to emerge in the 1970s as countries gradually left the practice of controlled exchange rates and opted for floating schemes instead.
Today´s FX market is characterised by high volume, high liquidity (especially for the most traded currency pairs) and decentralization.
What´s a currency pair?
At the FX market, currencies are traded in established pairs. With this system, the price of one currency is always expressed in relation to the other currency in the pair.
The four most traded pairs on the FX market are:
- EUR/USD: (Euro / U.S. dollar)
- USD/JPY: (U.S. dollar / Japanese yen)
- GBP/USD: (Pound sterling / U.S. dollar)
- USD/CHF: (U.S. dollar / Swiss franc)
What´s the interbank market?
The top-level of the FX market is the interbank market. The two major platforms are the Electronic Broking Services (EBS) and Thomson Reuters Dealing. Both of them facilitate currency transactions between major banks. Combined, these two platforms have over a thousand bank clients.
The interbank market has three main pillars:
- The spot market (where contracts are settled quickly)
- The forward market (where contracts are entered for future delivery)
- SWIFT, a network through which a majority of the international interbank messages are sent. SWIFT is an acronym for Society for World-Wide Interbank Financial Telecommunications. Financial institutions in over 200 countries are connected to SWIFT.
What´s leveraged trading?
When you engage in leveraged trading, you are borrowing money and using it for speculation. This is of course very risky.
Example: You make a €100 deposit. You borrow €900 and do a €1000 investment. If fails miserably and you lose everything. Instead of simply losing €100 and be back at zero, you are now actually at minus €900 and is obligated to repay the broker €900.
Leveraged trading is popular because it makes it possible to earn substantial amounts of money with just a small initial deposit, and you can benefit greatly from even minuscule market movements.