Forex trading, which is the exchange of one currency for another to make a profit, is one of the most popular trading options nowadays.
Even if forex trading is risky, many traders decide to follow the path of this more active and larger market.
But, how does it work?
First of all, traders need a broker that will allow them to invest in currency. There is a wide variety when it comes to brokers and financial agencies, you can start by checking these Malaysian forex brokers.
Your forex broker will provide you with an online trading platform from where to operate in the market. This means that you can trade currency from the comfort of your own home, office, or from wherever you are in the world.
The broker of your choice also determines what currency pairs you can invest in. They charge commissions and fees on your transactions (in forex usually called spreads) and should offer you help when you need it.
It becomes quite easy to see why choosing the best forex broker is of utter importance.
Basics of Forex Trading
As we have already mentioned, forex trading refers to the exchange of one foreign currency for another one.
Currency can be exchanged for many reasons, from travel to business, or simply to make a profit.
The forex market is the largest and by far more active market, since it is open 24 hours a day 5 days a week, meaning that at all times, someone around the world is trading. A market as dynamic as this one means that there is a raw potential to make an interesting profit, and, at the same time, an equivalent risk.
The currency exchanges are always made in pairs. Some currency pairs are more popular than others, and they usually get very low spreads.
Why do you want low spreads?
Spread refers to the difference between the bid price and the asking price of a currency pair. In other words, it’s the cost applied to any trade in forex.
Spreads are usually expressed in “pips’, and while many of the most common currency pairs can be exchanged without commissions (or spreads) when we talk about more exotic or less common pairs, spreads can be rather high.
In forex, high or low spreads represent the liquidity and volatility of the pair. The higher the spread, or wider the difference between the two prices of a currency pair, the more low liquidity and high volatility we will see.
On the other hand, having low spreads means much lower volatility and higher liquidity.
How to choose a broker for forex trading?
There are many different aspects to consider when choosing a forex broker.
First and most important, traders should consider their security and the safety of their money when investing.
It’s very easy to check how reliable and serious a broker is and to make sure they are registered with the correct regulatory bodies of a particular country. In the case of Malaysia, the Security Commission of Malaysia is in charge of overseeing all the activity in the forex market.
Other aspects traders should consider when choosing a broker are:
- Costs of transactions
- Initial deposit
- Commissions and fees
- Trading platform
- Currency pairs offered
- Customer service
Each of these aspects needs to be evaluated based on the priorities and preferences of the forex trader.