Forex trading is one of the many investment streams you can pursue in order to diversify your investment portfolio. For many, a forex trading business may even be their primary means of income. Considered a lucrative means of making money, forex trading, or online forex trading is the process of purchasing and converting various currencies. While this takes place for a variety of reasons outside of the investment market such as conducting foreign trade or when you travel to another country for a holiday, given the volatile nature of currencies that are inadvertently dependent on world events, investors soon saw an opportunity to capitalize on the price fluctuations in the forex markets as well. Forex trading is not too dissimilar to buying and selling stocks, wherein the fundamental concept of purchasing a commodity for a lower price in an attempt to sell it for high returns still applies. The only variation here is that instead of stocks of a company, you are trading currencies.
For example, let’s say you have 50,000 Indian Rupees. Which amounts to about 689.6 dollars, when one dollar is worth 72.5 Indian Rupees. When you convert your 50,000 rupees into 689.6 dollars, you are effectively buying that number of dollars with your funds. As someone in the forex trading business, you are likely to look for an opportunity to sell your dollars, when the price goes up. If the dollar moves up by 1 point, now being worth 73.5 rupees, your initial investment of 50,000 rupees is now worth 50,688 rupees, netting you a 688 rupee return.
Another variation between online forex trading and stock trading is that forex trading businesses do not deal with any given exchange. Instead, OTC electronic trades are carried out to trade currencies, with currencies being traded in prominent financial sectors such as Zurich, New York, Tokyo, and Hong Kong. Additionally, the forex markets are open 24/7, five and a half days a week.
These facets of forex trading make them attractive to those looking to start up a forex trading business from home. In this article, we will break down how you can begin forex trading from home, and various tips and tricks that might help you along the way.
Forex Trading From home.
Like most another commodity trading, forex trading has also been completely digitised, making it easy to carry out online forex trading from the comfort of your home.
1. A forex broker
One of the first things you will need to start forex trading from home is a forex broker. As the name suggests, these are depository participants (DP) that enable you to interact with forex markets. In India, online forex trading is only permitted through DPs registered with SEBI. Similar to stockbrokers, there are two primary types of forex brokers; discount forex brokers that simply enable you to access forex markets, and traditional forex brokers, which offer a more full-fledged service, complete with market analysis, tips and research cues as well. Based on your requirements, you will be required to pick a forex trader to start a forex trader from home.
Now that you are equipped with the tools you need to trade, here are some tips that you might want to follow before to set up your forex trading business from home.
2. Pick your investment pool.
As with any investment, you are likely to allocate a certain amount of funds to forex trading. Forex traders are offered the benefit of margins by brokers while online forex trading. This means that your broker lends you a certain multiplier of your investment amount (5x, 10x) which you can then use to trade, and increase your profit from smaller percentages. This means that you might not require a high amount of capital to begin forex trading. However, one must always be cautious of trading with margins until you have a good amount of knowledge and understanding about the market, as the risk lies entirely on the investor, and the broker has to be returned their amount regardless of whether you made a profit or a loss.
3. A demo account.
If you are entering the online forex trading market for the first time and are just looking to figure out how the market works and grow your knowledge, before you begin your forex trading business, you might want to begin with a demo account. A test run of sorts, a demo account allows investors to trade with ‘fake’ money, in order to test their skills and learn the markets, before they invest real capital. Online forex trading with a demo account will help you better your understanding before you start trading with real currency. Note that demo accounts are only available for a limited amount of time.
4. Grow your knowledge base.
As mentioned before, forex markets are often affected by world events and relations. In this situation, while a technical understanding of the market is important, it is of equal importance that one keep themselves up with current events, world news and various other fundamental information sources that can help you gauge how prices will fluctuate.
Given the covid 19 lockdowns, many of us find ourselves looking for investment avenues to grow our capital, in order to increase our wealth or make up for losses induced by the pandemic and subsequent lockdown. Forex trading provides one such opportunity where individuals buy and sell currencies in a similar way they do stocks, in order to generate returns. Due to the market being completely digitized, you can now begin forex trading from the comfort of your home, adding another investment stream to the process of diversifying your portfolio. While the basic of trading remains the same, forex trading is an entirely different world of investing, and even if you are a well-versed stock investor looking to delve into online forex trading, one could benefit from doing their thorough research on forex markets and practising with a demo account before investing real money and beginning forex trading from home.