Have you come to our website and are interested in knowing what we do? Do you want to know how and what we do? Have you heard about La Bolsa, but have always been shy about it because you didn't know it?
Most people confuse essential aspects when they hear about Forex and the Forex market. financial markets in general. Surely you have heard of someone who is a broker or who is dedicated to the stock market, invests in the stock market or is a trader. But pears are not apples and vice versa.
Whether you are one of those who still do not distinguish a broker from a trader, an investor from a trader or simply want to expand your knowledge because you are interested in investment, let us tell you about it in a simple way.
Stay, because here we are going to explain a little about how this "little world" works, which we thought was for the rich, but in reality it is accessible to everyone.
To put ourselves in context, we have to make some simple definitions. But we will try to make it easy to understand everything.
In this article you will learn...
What is the Stock Exchange?
The Stock Exchange is a market or, rather, a set of markets in which buyers and sellers (traders) negotiate the purchase and sale of securities (make trading) such as Forex, stocks, indices, options, bonds, cryptocurrencies..., for a price agreed between them through orders to buy and sell the traded assets whose price fluctuates depending on supply and demand.
But what if I don't understand values? Maybe right now it seems very complex to you, but that's okay, we're going to learn everything, so let's continue.
The Stock Exchange or Stock Market has among its functions to channel our savings (investment) towards a higher profitability than what a bank can offer us, what do I mean by that? That in its day my bank offered me a 12% of interest for not touching the money I had saved, but that value has been decreasing until today it is 0.1% or nothing. Therefore, banks have stopped taking care of us even though we leave them custody of our money, the savings we have been able to save during our lives.
On the other hand, if we decide to take The Stock Exchange as an alternative to our way of "saving" our savings, we can generate that interest that banks no longer give us. Moreover, it is a transaction mechanism that is fully regulated, which makes it a safe environment for the activity of investors thanks to the guaranteed legality, security and transparency required of stock market operators (brokers), in addition to the obligation they have to provide truthful and continuous information about securities, prices, operations...
Stock exchanges try to meet the interests of companies, states and savers, and therefore we can also have access to it. As savers, we can obtain liquidity in the stock market because, by trading on it, we have more variety of products to choose from to get our money's worthIn this way, we obtain greater liquidity than through the most common methods offered by banks and, in addition, we become investors.
Doesn't that sound good? We are going to help you in this process.
Can we make money?
Definitely yes. It's basically buying a product and selling it for more than the price at which you bought it.
You are probably already thinking about stocks, well no, that is more complicated than it may seem, it sounds great when we see it on the news and think... what if I had bought the shares of .... when...? But we are not going to get into stock trading because, as nice as it sounds to own shares of X company, you can make as much money as their shares go up, but we also run the risk that such shares become worth 0 and we can lose all or virtually all of our invested capital in a heartbeat and we don't want that, do we?
Why did we want to be part of La Bolsa?
Let's think about it. If investing were not profitable, nobody would do it! And we all want to obtain profitability, we all want to recover our investment with an added value, everyone! The companies listed on the stock market, you, me...
We trade in Forex because there is more transparency than in other markets, such as the stock market, and they are more discreet investments. Another reason is that Forex is the market that gives more money by far, has greater liquidity and presents constant investment opportunities. The profitability that we can obtain from a stock in 6 months, in the foreign exchange market we can obtain in one month (or less), reaching a profitability of 10 or 15% monthly. Of course, if we work hard and decide that we want to take more risk, the result could be much higher than we expected, but we will see.
How does one enter and how much does it cost to join the Stock Exchange?
Among the participants in the stock market are the intermediaries or brokers, also called stockbrokers.
We, as traders, decide in which currency pairs we want to trade. The brokers will be our representatives and will be in charge of managing our orders as investors and entering them into the market. The good thing about them is that they are not linked to any company, they earn money through fixed commissions, swaps and spreads that they will apply, depending on the contract we have, to each of the orders we decide to enter the market.
Swaps, simply put, are an interest that one of the parties agrees to pay for the transmission of money in exchange for resources, or goods and services and, in turn, guarantees liquidity, which would mean that there will never be a shortage of dollars to continue operating. The swap is applied to our operations at the exchange rate of the day (23:00 h.) for as many days as we have the operation open and can be either a positive or negative amount.
Spreads can be fixed, but in our case they are a variable commission that we pay to our broker in each of the transactions either at the opening or at the closing of the operations, that is to say, they are a kind of margin between the difference of the purchase and the sale: ask and bid. It means that you will buy at the higher price and above the market price (ask) and sell at the lower price and below the market price (bid).
When you decide that you are ready to enter the stock market you must hire a broker, which is a platform, usually online, that will create a bank account in your name within their company with which you can enter the stock market and start trading in very few steps.
What do I need and how much do I need to trade in the stock market?
We are in the 21st century and access to an Internet connection and our cell phone or a PC will be the only thing you will need. These allow you to invest in any financial market without leaving home, from the sofa and at any time of the day or night.
Okay, so far so good, it's easy, I already have that, but... will I need a lot of money to get into the stock market and start making a profit? The answer is No.
Despite what it may seem, and the renown that The Stock Exchange has, there are still many people who believe that they have to own 500,000 €/$ to invest and this is not true. Nor do you need to have 100,000, or 50,000, or 10,000, or 1,000... In fact, you don't need to be rich to enter The Stock Exchange.
You can invest in the Stock Market with very little capital, so it is something within the reach of any saver-investor's pocket.
Interesting? Let's keep going.
Why do we trade in the Forex or Foreign Exchange Market?
Forex is the market for trading, or in other words, speculating on the price of currency pairs. On a regular basis, the Forex market opens on Mondays and closes on Fridays and remains active uninterruptedly.
As I said before, we operate in Forex because there is greater transparency, greater profitability and it is the largest and most liquid financial market in the world since it moves about 5 Trillion dollars (USD) a day. This means that it is where there is more money involved and, therefore, we can always find the counterparty (someone to buy what we want to sell now or to sell what we want to buy now).
Another advantage that can be found in Forex is that you can trade leveraged, or what is the same, you can trade with little money and at the same time you can be moving a lot of money.
I beg your pardon? In thisarticle on leverage we will tell you a couple of interesting questions about it.
What are currencies in Forex?
Each country has a currency (fiat currency) with which its inhabitants carry out economic transactions. For example, if you are Spanish, your currency is the Euro, while if you are British, you use the Pound. The same is true for an American, whose currency is the Dollar.
Well, in Forex, currencies are bought and sold. Surely you have heard some statement like "the dollar has fallen" or "the yen has depreciated". But of course, a dollar is always worth and will always be worth a dollar, so, in order to determine the price of a dollar, it is necessary to compare it with another different currency, for example, the euro, and this is called a currency pair or cross.
Thus, to know if the Dollar has depreciated against the Euro, we have to know the quoted price of both currencies and compare them with each other. Thus, if the quoted price of the Euro has increased more than that of the Dollar, the Euro/US Dollar pair, known in Forex as EURUSD or EUR/USD, will increase in price. In this case, the base currency Euro will have increased in value relative to the quoted currency Dollar.
And all of this can be seen in the currency pair price charts that measure the price of each of the crosses of all the currencies traded on Forex over time. If the chart "goes up" it means that the EURUSD pair has risen in price and if it goes down, the opposite is true.
What is a trader?
A trader is a stock market investor, someone who trades in the markets and, in short, someone who buys and sells a financial asset.
Does this mean that I, who buys and sells on the Forex market, am a trader? Yes, that's right, but at the investment party, I have to use intermediaries that allow me to carry out these types of buying and selling operations. And this is where the definition of broker comes in.
How to make money in Forex?
This is where we all wanted to get to, right?
In Forex you can make money whether the price of an asset increases or decreases. It sounds strange, but it is relatively simple to understand.
Let's say it's my first time in Forex (there's always a first time in everything) and, as I have no idea what I'm doing, I open my MetaTrader 4 chart, which is a free software that allows me to access different markets and I select a currency cross, such as GBPJPY (British Pound against Japanese Yen).
I have money and I want to invest, so, after having been looking at the graph for a while...
I decide that the price is going to depreciate in the next minutes, hours, days or weeks or, in other words, that the Pound is going to lose value against the Yen.
That's great! I know where the price is going to go (we all wish) and my mind is made up, but what do I do to make money if my prediction is right?
Simple: I have to make a sale. When the price goes down further, the cheaper I can buy what I sold and earn the difference. Are you lost? It's normal, it has happened to all of us the first time we face a market.
You may be wondering how it is possible to sell something that I have not previously bought, but the answer is precisely that in order for someone to buy, someone else must sell. Well, that and this is a financial market and here things work a little differently.
Buy (buy or long) and sell (sell or short) on Forex
Forex is a zero-sum market. This means that what one gains, another is necessarily losing. And in order for there to be the necessary liquidity in the market, traders can execute both buy and sell actions.
When you execute a buy or purchase, you are buying the asset and you will get the benefit when it increases in price and you sell it. We all understand that.
The same thing happens with the sale. When you execute a sale, you are selling the asset and the desired profit will be obtained in the purchase of the same asset.
So that we understand each other: in the financial markets you can "bet" that the price will go up and you can also "bet" that the price will go down. This does not occur, for example, in the stock market (in its definition as a market for buying and selling shares), where what we do before being able to sell a share is to buy it.
The only difference between "betting" and "trading" or investing is that betting offers slightly less than a 50% chance of success. The spread falls by the wayside in opening and closing commissions, overnight position maintenance fees or swaps and spread, which is the difference in price between the ask and bid price. Gambling, therefore, involves taking on more risk than potential profit, so it is not profitable.
The second option is "trading", that is, buying and selling financial assets based on previous knowledge. This depends on the trader's skill, experience, serenity and knowledge to unbalance the balance towards the side of "I win more times than I lose" or at least "the sum total of all my operations gives me a positive balance".
It sounds difficult and indeed it is, but don't worry, we're not done.
How can I invest in Forex?
You can do it the conventional way, which will involve a lot of studying, a lot of work, a lot of time, a lot more practice, and all without the security of success. Remember that approximately 90% of retail investors lose their money when they invest in the markets. Risk is inherent in the market and it will probably take years before you master an investment strategy that is sound enough to bring you consistent and lasting profits over time. It's not impossible, certainly not, but it takes a long, long time and a lot of effort.
Or you can do it like we do. In our case we operate the markets with algorithmic trading tools, which are computer programs that, based on mathematical calculations, are able to find the necessary imbalances in the Forex market to obtain economic profit and all this, without human intervention.
Finding out how our tools work is a more advanced matter and depends on issues such as a good technical and/or fundamental analysis, knowledge of the markets, their sessions, patterns and a long etcetera that we will explain in other articles.
For the time being, you can keep two basic issues:
- Anyone can enter the Forex market because it requires very, very little money.
- Anyone can make money in Forex if they study hard enough or if they use the right tools, like the ones we design and make available to you for free.
Did you like this Forex trading? Did you have any doubts? If so, you can leave a comment and we will help you with whatever you need, best regards!