Forex Trading – A Beginner’s Guide
Forex trading, also known as foreign exchange, is the act of changing one currency into another, usually for commerce, trading, or tourism purposes. For example, if you’re going on vacation to Japan, you’ll want to exchange your dollars for Japanese yen. Or if you want to buy goods from a business in Japan, you’ll need to change your yen back into dollars. Forex trading can be extremely lucrative but also extremely risky and should only be done with carefully planned trades and sound money management strategies.
What Is Forex?
However, if you’re not sure whether forex trading is right for you at all (or even if it’s legal in your jurisdiction), please read our Is Forex Trading Legal? guide first before going any further here. Also please read our Why Trade Currencies?
Why Trade?
Before we get into how of forex trading, we need to cover why. For example, why should I trade? What are my goals as a trader? What am I looking for in a broker or brokerage? Keep in mind that these questions are asked by first-time traders because they’re thinking about how to start forex trading. We will answer all of these questions and more later on. For now, let’s focus on defining trading first. Simply put, trading is buying something with the expectation of selling it at a higher price sometime in the future. You can buy and sell stocks, currencies, commodities (such as gold), or even collectibles (such as stamps). In fact, you can buy almost anything if you have a broker who trades in that market. As you read through our guide on forex trading basics below, keep your eyes open for one thing: what motivates someone to trade. It’s different for everyone! Some people want to day trade stocks; others want to make money from their portfolios over time; some want just one big score before retiring; some people want both…the list goes on! Whatever your reason(s) may be, understand them well before deciding which strategy(ies) would work best for you. Let’s move on to discussing what makes up foreign exchange rates!
How Much Money Can I Make With Forex?
Because Forex is so popular, it’s important to note that not everyone will be successful with it. For example, if you try to trade Forex and lose money time after time, you might feel like giving up. On average though, those who stick with it can make a lot of money through forex trading. In fact, according to Investopedia, in 2013, currency traders on Wall Street made more than $200 billion in total. The key is finding an approach that works for you. While there are many different ways to trade currencies, they all involve buying one currency while simultaneously selling another. This means your profit (or loss) depends on how much value each currency has compared to the other at any given moment in time.
Who Should NOT Trade?
Anyone who isn’t willing to lose money! Forex trading can be highly lucrative, but it’s also risky. Just like with any other financial instrument, there are many ways to make money in forex, but there are many more ways to lose your hard-earned cash. People who don’t have a good sense of how markets work and how investment decisions should be made (which is what most people fall into) should steer clear of forex markets. If you aren’t willing to accept that losses will happen as well as gains, then you shouldn’t trade currencies. If you do decide to start trading currencies, always use stop losses and limit orders so that you minimize risk exposure. The best way to learn about forex is by reading books or taking courses on basic investing principles and market analysis. You can then practice those skills by trying out online platforms such as FXCM or Oanda demo accounts before making real trades. Be sure not to use margin when practicing because it can magnify losses if things go wrong.
What Are The Costs Of Trading?
Forex trading is a process of buying and selling currencies. To do so, you must own an account with a forex broker (there are dozens) and deposit money into it. You then have currency at your disposal to make trades with. There are two types of accounts: margin accounts and cash accounts.
Get Educated!
Before you start buying and selling currencies, get a firm grasp on how forex works. Reading blogs, books, or watching YouTube videos about it are all good ways to learn. Don’t try to become an expert in one night—that’s a recipe for disaster. Take your time, do your research, and make sure you understand exactly what you’re getting into before making any trades. Once you feel comfortable with what forex is and how it works, then come back here and read on. If you already know what forex trading is, skip ahead to Making Money! below. If not, keep reading! (If there was ever a topic that needed further explanation than forex trading, I don’t know what it would be.)
Choosing The Right Account Type For Me
There are several different account types to choose from when you open a Forex trading account. The most common accounts are segregated and integrated, but there are also managed currency cards. Many new traders opt for integrated accounts because they can use them in several places around the world, but they don’t offer as much protection as segregated accounts do if something goes wrong. There is no one-size-fits-all option for every trader, so it’s a good idea to read up on all of your options before deciding which one to go with.
Choosing An FX Brokerage Firm (FXCM)
It may seem odd that we start out a post on forex trading with a discussion about forex brokers. After all, aren’t they supposed to facilitate our trade? But before you can begin trading, you need to set up an account and choose a broker, which will be your gateway to accessing currency exchange markets. Therefore, it is critical that you do your due diligence and select an FX brokerage firm wisely. Make sure to take these factors into consideration
Cashing Out! Taxation Of Currency Gains In 2018
Forex and other currency transactions are taxed in exactly the same way as stock transactions. Currency gains will be taxed at your regular income tax rate, or if you fall into a lower tax bracket, at a 15% maximum. Gains are counted as ordinary income, which means that taxpayers will pay an additional 3.8% to help fund Obamacare. This is known as the Net Investment Income Tax (NIIT). All taxpayers, regardless of filing status, are subject to NIIT on their forex gains. For example, say you’re married but file separate returns and make $85,000 per year; your spouse makes $50,000 per year and has no other income or investments.