So, you have decided to put your money to work and start trading. You want to become an investor or trader, but you have hundreds of questions and doubts in your mind.
Does this sound relevant to you?
If yes, we are here for you to answer your questions. In this blog, we are going to answer the most common questions beginners might have when trading in the USA.
So, let us get started:
Stock trading vs. Forex trading
This is perhaps the biggest confusion for beginners. Stock trading and Forex trading are different. Stock trading means you buy stocks in a company and become a shareholder. The liquidity depends on the company and the market it operates in. It is worth noting that stock trading usually has low leverage.
On the other hand, Forex trading is when you exchange a country’s cash to make a profit. This form of trading is characterized by high, ever-present liquidity and very high leverage.
If you want to make small, frequent profits from price movements, then you can opt for Forex trading. The Forex market is more volatile compared to the stock market. In this market, you can earn profits easily, especially if you work with reliable US brokers. These brokers will make sure you earn good profit while helping with risk management.
What do you need to get started with trading in the US?
First and most important, familiarize yourself with relevant authorities. For instance, learn about the Securities and Exchange Commission (SEC), which oversees stocks and securities. If you are opting for Forex trading, then you should educate yourself about the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Learn about all the rules and regulations of these organizations to make sure your trading practices comply with them. This is important to make safe, risk-free investments.
Next, you need a brokerage account to start trading. When selecting a broker, consider key factors like:
- Reputation of the brokerage firm
- Fees
- Available assets for trading
- Customer support
- Platform usability
If you are a non-US resident, you may need to submit proof of identity and residency.
When it comes to capital requirements, it varies according to the type of trading. For stock trading, there is no minimum amount to get started. But there are rules like those who trade four or more times in five days, must have at least $25,000 in equity in their account. Forex traders can start with as low as $100, though starting with a higher amount makes it easier to manage risks.
What economic factors affect the Forex market?
The key economic factors that influence the Forex market are:
- GDP – gross domestic product (GDP) readings, which indicate the economy’s general health.
- Consumption across a plethora of releases, including retail sales, automobile sales, home sales, etc.
- CPI – consumer price index report
- PPI – producer price index, which indicates if consumers will see higher costs in upcoming months.
- PCE – Personal consumption and expenditure, which shows consumer spending habits.
So, monitoring these economic factors is important for Forex traders. In fact, the ability to track these indicators is one of the important features of a Forex trading platforms.
What is short selling and its risks?
Short selling is a stock trading strategy in which traders borrow a security whose price seems to decline and sell it on the open market. Investors and portfolio managers use short selling as a hedge against the downside risk of a long position.
It is worth noting that traders have to pay any interest the broker charges or commissions involved. It may also involve dividend payments and margin calls.
Can you trade crypto on Forex?
The shortest answer is yes. Some forex trading platforms and online exchanges let you trade cryptocurrencies. But since trading crypto is a relatively new thing, traders must beware of the reputation of the platform, security, trading costs, trust issues, and more. It is important to choose the right cryptocurrency, for example, Bitcoin that makes up around 50% of the entire market value.
How do we manage risk in volatile markets?
Risk management is critical from the very beginning, whether you choose stock trading or Forex trading. This is given the highly volatile nature of the markets. Ideally, when you choose a brokerage firm, your broker should monitor your portfolio for any risks and manage them accordingly.
They typically use strategies like stop-loss orders, portfolio diversification, etc. Being a trader and portfolio owner, you must also keep yourself involved in the process of risk management.
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