The foreign exchange account, or forex account, is used to hold and trade foreign currencies. Typically, you open an account, deposit money in your local currency, and then buy and sell currency pairs.
Your goal, of course, is to make money from your trades. Unfortunately, the majority of beginner forex traders lose money; they usually spend less than four months reaching the point where they lose enough to close their trading account.
This does not mean that the forex market is a scam, as some critics claim, but there are many scams in the forex market. Making money from high-leverage currency trades is harder than it seems and requires, at the very least, developing an expertise that many beginner traders are unable to acquire.
What is a Forex Trading Account
A foreign exchange account, or forex account, is used to hold and trade foreign currencies. You can open a forex account as easily as opening a bank account, but first, you need to find a broker.
You should make sure not to fall into the trap of unscrupulous brokers in the forex market, so be sure to do the necessary research and consider trading through a publicly licensed broker by the U.S. Securities and Exchange Commission (SEC).
Before making your final decision, compare commission rates among brokers, as transaction costs are an important factor in trading profitability.
How to Open a Forex Trading Account
The requirements for opening a forex trading account have become simpler since the rise of online trading. Today, opening a forex trading account is almost as straightforward as opening a bank account.
First, of course, you will need to find a forex broker. All forex trading for individuals is conducted through a broker. Some may be specialized forex brokers, or they may be the same broker you use for investing and trading in the stock market.
You will have to fill out a brief questionnaire about your financial knowledge and trading intentions. You will also need to provide identification and the minimum deposit required by your forex account institution. That’s it. You are now free to trade.
For example, many forex brokers may accept a credit card or debit card instead of cash. So, you really shouldn’t need to deposit any money at all – and that’s not a good idea. If you don’t have the cash now, how will you pay for losses later? Credit card debt carries high interest rates.
Forex Brokers
One aspect of currency trading that makes it riskier than trading in the stock market is that the entire currency trading industry is either poorly regulated or – as is the case with some trades – not regulated at all. One of the consequences is that unless you carefully consider the reputation of the forex broker you choose, you might fall victim to fraud. There are two ways to avoid this problem.
The first way is to completely avoid specialized forex traders and trade with a general stock broker who operates in the United States and is thus regulated by the U.S. Securities and Exchange Commission (SEC).
The other way to avoid unintended contact with a fraudulent broker is to proceed with extreme caution when considering a specialized forex broker. Open an account only with a U.S. broker that has membership in the National Futures Association (NFA). Use the NFA’s background information center to check the broker and their compliance record.
Even in this case, it’s a good idea to choose a large, reputable forex broker like Forex Capital Markets (FXCM). FXCM – like most large U.S. forex brokers – offers a free demo account where you can try out potential trades without risking your own capital. Other well-known U.S. forex brokers include CitiFX PRO, a division of CitiBank, and Thinkorswim. Don’t let the cute name fool you – Thinkorswim is a branch of TD Ameritrade.
Before
Complete your research, compare commission rates among brokers. Transaction costs are an important factor in the profitability of trading activity.
Source: https://www.thebalancemoney.com/what-is-a-forex-account-1344932
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