Among the many financial markets that exist worldwide, the Forex market is the largest of all. The Forex market is where different currencies are traded against each other, with daily transactions often exceeding US$4 trillion. The main participants in the Forex markets are central and commercial banks, hedge funds and multinational corporations. However, the Forex market is the easiest financial market to access as a retail trader, on a desktop or mobile device and with only a small amount of investment capital. Unlike the ‘big players’, who invest millions in Forex trading, retail traders can start with limited funds and without any prior trading experience. They just need to select a Forex broker, preferably from regulated CFD brokers and make an initial deposit indicated in the trading account details. In our experience, regulated CFD brokers stipulate an initial balance of around $100 in a regular trading account, but the amount varies depending on the type of account and the benefits provided to clients. However, there are beginner Forex brokers that offer micro accounts with deposits as low as $1, giving novice traders a chance to “test the waters” before taking the plunge with larger investments and riskier trading positions.
Do retail Forex traders need large sums of investment capital to trade?
If retail clients could invest only their own capital in forex trading, the potential for a worthwhile profit would be limited to the very wealthy investors. However, the best Forex brokers offer margin trading and leverage to their clients, as part of the online trading package. Leverage allows Forex traders to control more of the market without putting up the full amount of capital. Typically, the amount of leverage accessible on the Forex trading platform ranges from 1:25 to 1:500. While we have seen regulated CFD brokers offering anywhere from 1:1000 to 1:2000, trading at this ratio level can be very risky and should be avoided by inexperienced traders. In particular, the leverage ratio offered may depend on the client’s trading experience and the type of trading account. The best Forex brokers often ask clients to demonstrate their understanding of Forex trading by taking a simple test on the website. The test results decide the initial leverage ratio, which can be increased as clients gain trading experience. Successful leveraged trading generates higher investment gains for traders than if they had traded using only the funds in their trading account.
However, leveraged trading can “backfire” when unsuccessful trades occur, as potential losses are greatly amplified. However, the best Forex brokers often protect their clients from catastrophic losses by providing limiting features like ‘Stop Loss’ settings and preset margin calls on the platform. In our experience, beginner Forex brokers and regulated CFD brokers take extra care to integrate negative balance protection into their trading platforms.
Advantages of trading Forex
The Forex market offers endless trading opportunities to traders, especially when the markets are highly volatile. Because currency trading involves predicting the price movements of currencies against each other, the depreciation of one currency means the appreciation of another. In addition, the global Forex markets are open 24 hours a day, Monday to Friday, and the Asian, European and Asian market sessions follow each other due to different time zones. The best Forex brokers provide support for as long as the markets are open. In our experience, Forex brokers for beginners and more experienced traders alike offer demo accounts to practice trading as well as free educational training courses on their websites. It is important to note that regulated CFD brokers are usually ECN (Electronic Communication Network) brokers that link smaller investors with liquidity providers in the Forex markets. ECN brokers do not trade against their clients, but they are interested in the profits of their clients, since they earn commission on those profits.
automated forex trading
The best Forex brokers often offer automated trading on their trading platforms. With financial markets affected by multiple variables, it is very exhausting for traders to sit at their desks for hours trying to understand the Forex market. Automated trading is possible through the use of Forex robots that analyze market movements and generate predictions via trading signals on the platform or even on traders’ mobile devices via SMS. Traders can decide to act on the signals themselves or use the signals to execute Forex trades automatically. Automated trading with signals is especially useful for inexperienced traders and can substantially increase investment gains.