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Most investing is done online these days and in a down market trading online is critical. With interest rates so low, any money sitting in your bank is practically stagnant. There are, however, some financial instruments that have great potential for yielding profits. Forex trading, for example, has become a popular way of getting at least some return on your money without too much effort.
What is Forex trading and why is it so popular? The term “Forex” is short for foreign exchange market, which is the “place” where different currencies are exchanged in a continuous fashion by millions of people all over the world.
It isn’t difficult to conceptualize Forex trading. Tourists who travel from one country to another must exchange currencies in order to pay for a local product or service. A wad of Euros would be totally useless to an Italian tourist wishing to visit the Sphinx in Egypt because it is not the locally accepted currency. The tourist would have to exchange his Euros for the local currency, Egyptian pounds, at the existing exchange rate that day.
Even without knowing much about Forex trading, residents of one country exchange currencies with another country each time they purchase a foreign product. For example, someone living in the U.S. who wants to buy a nice bottle of French wine may pay for it in dollars but the wine has already been paid for in Euros. Somewhere along the line, either the wine producer or the American importer had to have exchanged the equivalent value of U.S. dollars (USD) into Euros. This is all about Forex trading.
Unlike the New York Stock Exchange or other stock markets, there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week.
Before you throw yourself full force into the Forex fray, it’s extremely important that you read Forex broker reviews to make sure that you’re choosing the right broker for your specific needs, one that will secure your money at all times and whose service is top notch. Although setting up a Forex trading account is relatively simple, there are always questions that come up which the novice trader cannot handle. An online help desk can be beneficial in these cases.
Another feature to look for in a Forex broker is whether you have the option of a free demo account. This allows you to make trades in a real online account without putting up any money. Usually this demo account is made available for you for about a month which is sufficient time for you to grasp the concept of Forex trading and learn the ins and outs of currency price movements.
It is important to remember that trading Forex online in the comfort of your home is a risky business and you can lose even more than you start out with. Forex brokers offer traders considerable leverage which sounds like a great opportunity but can lead you to disaster if not taken seriously. So take some time to learn about Forex markets and start off slowly. Here’s your chance to make some money, but let’s not go overboard.
Cina Coren is a contributing editor for DailyForex and is a freelance writer for various publications.
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