Forex - What do I need to know?
  • Lily Chen
  • 10.10.2023

The term Forex is an abbreviation for FoReign EXchange. It is a market in which traders can operate and exchange - for various purposes, including financial speculation - various foreign currencies.

Unlike a stock exchange, Forex does not have a real physical location, but operates exclusively in the virtual space of the Internet. Trading is also carried out only electronically and is called online.

The benefits for market participants are manifold. First, Forex works 24 hours a day. In addition, taxation is very favorable here, since capital gains are not taxed in Italy, i.e. profit if the entire transaction lasts less than seven days and its value does not exceed 51,000 euros.

In reality, what happens in the Forex market is not the exchange of currencies, but the conclusion of contracts.

How does it work?

So, we found out that Forex is the purchase and sale of foreign currencies, carried out with the aim of making a profit from this operation. But how does this work in practice? Let's find out together.

All trading in the Forex market takes place online, as trading participants are scattered throughout the world. In order to trade, you need to use one of the trading sites. The operation itself may seem quite simple, but in fact it is not: for successful trading you need to know a few basic rules and, above all, practice a lot. It is useful, for example, to know what days and times are best to buy and sell, but it is also important to be able to analyze indices and know the value of various currencies.

Forex contract

As we have already said, the fundamental point in trading on the Forex market is the contract concluded between the two parties. On the one hand there is a trader, on the other there is a broker. The figure of a broker is fundamental because a person cannot directly enter the Forex market, but can only do so through a bank, broker or online trading company.

In a Forex contract, three elements are fundamental and are specified in the contract itself: a currency pair, i.e. the one that needs to be sold and the one that needs to be bought, which in jargon is called a cross; the exchange rate at which all these transactions take place, and finally the total amount of the transaction itself. The point is the minimum percentage profit for each transaction.

Advantages and disadvantages

This is truly a market that allows those who have the opportunity to earn big money, since this is the market that has the greatest liquidity today. However, it should be noted that all that glitters is not gold and that it comes with a high level of risk. Therefore, those who are planning to start investing in this market should first open a demo account to practice, and only after some time switch to a real account.

Experience is therefore a fundamental factor. To avoid making a mistake, it is recommended to start with a very small investment and allocate a maximum budget that should not be exceeded in order to prevent possible losses, especially in the first periods.

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