Forex for a trader
What is forex market

What is forex marketWhat is forex? Quite simply, it’s the global market that allows the exchange of one currency for another. If you’ve ever traveled to another country, you usually had to find a currency exchange booth at the airport, and then exchange the money you have in your wallet into the currency of the country you are visiting. You go up to the counter and notice a screen displaying different exchange rates for different currencies. You find “Japanese yen” and think to yourself, “WOW! My one dollar is worth 100 yen?! And I have ten dollars! I’m going to be rich. ” When you do this, you’ve essentially participated in the forex market! You’ve exchanged one currency for another. Or in forex trading terms, assuming you’re an American visiting Japan, you’ve sold dollars and bought yen. Before you fly back home, you stop by the currency exchange booth to exchange the yen that you miraculously have left over (Tokyo is expensive!) and notice the exchange rates have changed. It’s these changes in the exchanges rates that allow you to make money in the foreign exchange market. The foreign exchange market , which is usually known as “ forex ” or “ FX ,” is the largest financial market in the world. Compared to the “measly” $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its $5 TRILLION a day trade volume. That’s trillion with a “t”. Let’s take a moment to put this into perspective using monsters… The largest stock market in the world, the New York Stock Exchange (NYSE) , trades a volume of about $22.4 billion each day. If we used a monster to represent the NYSE, it would look like this…

Looks intimidating. Some may even find it sexy. You hear about the NYSE in the news every day… on CNBC… on Bloomberg…on BBC… heck, you even probably hear about it at your local gym. “The NYSE is up today, blah, blah”. When people talk about the “market”, they usually mean the stock market. So the NYSE sounds big, it’s loud and likes to make a lot of noise. But if you actually compare it to the forex market , it would look like this… Oooh, the NYSE looks so puny compared to the forex market! It doesn’t stand a chance! Check out the graph of the average daily trading volume for the forex market, New York Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange: The currency market is over 200 times BIGGER! It is HUGE! But hold your horses, there’s a catch! That huge $5 trillion number covers the entire global foreign exchange market, BUT retail traders (that’s us) trade the spot market and that’s about $1.8 trillion .

So you see, the forex market is definitely huge, but not as huge as the others would like you to believe. We don’t like to exaggerate. We just keepin’ it real. Do you feel like you already know what the forex market is all about? We’re just getting started! In the next section, we’ll reveal WHAT exactly is traded in the forex market. Forex Tutorial: What is Forex Trading? What Is Forex? The foreign exchange market is the "place" where currencies are traded.

Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U. S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U. S. importer would have to exchange the equivalent value of U. S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate. The need to exchange currencies is the primary reason why the forex market is the largest, most liquid financial market in the world. It dwarfs other markets in size, even the stock market, with an average traded value of around U. S. $2,000 billion per day. (The total volume changes all the time, but as of August 2012, the Bank for International Settlements (BIS) reported that the forex market traded in excess of U. S. $4.9 trillion per day.) One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across almost every time zone. This means that when the trading day in the U. S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly. Spot Market and the Forwards and Futures Markets There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market and the futures market. The forex trading in the spot market always has been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading and numerous forex brokers, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators.

When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future. What is the spot market? More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal". It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement. What are the forwards and futures markets? Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement. In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves. In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange.

In the U. S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement. Both types of contracts are binding and are typically settled for cash for the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well. Note that you'll see the terms: FX, forex, foreign-exchange market and currency market. These terms are synonymous and all refer to the forex market. What is Forex Market. “Forex Market is a decentralized global market where all the world's currencies are traded against each other, and traders make a profit or loss from the currencies’ value changes.” Forex Market is also known as Foreign Exchange Market, FX or Currency Trading Market.

History of Forex Market. The history of Forex market is marked by two particular events which put a deep stamp on its formation and development. These two historical events are the creation of Gold Standard System and Bretton Woods System. Gold Standard and Bretton Woods Systems. Gold Standard System was formed in 1875. The main idea behind it was that governments guaranteed that a currency would be backed by gold. All the major economic countries defined an amount of currency to an ounce of gold as the value of their currencies in terms of gold and the ratios for these amounts became the exchange rates for these currencies. This marked the first standardized means of currency exchange in history. However, World War I caused a breakdown of the gold standard system as countries sought to pursue economic policies which would not be constrained by the fixed exchange rate system of the Gold Standard. In July 1944 more than 700 representatives from the Allied nations brought forward the importance of a monetary system which would fill the gap left behind the gold standard. They arranged a meeting at Bretton Woods, New Hampshire, to set up a system that would be called the Bretton Woods system of international monetary management. The creation of Bretton Woods System led to the formation of fixed exchange rates as the United States defined the value of US dollar in terms of gold equal to $ 35 for one ounce and other countries pegged their currencies to the dollar.

The US dollar became the main reserve currency and the only currency that was backed by gold. However, in 1970 the U. S. gold reserves were so depleted that it was impossible for the U. S. treasury to cover all the reserves held by foreign central banks. In August 1971 the U. S. announced it would no longer exchange gold for the U. S. dollars that foreign central banks had in reserve. This was the end of Bretton Woods System and the beginning of Forex Trading System. Foreign Exchange Market. The forex market is the largest market in the world with an average trading value over $5 trillion per day. It has no centralized marketplace where transactions are conducted. Forex trading is carried out electronically over-the-counter (OTC), meaning that all trading transactions are performed via computer by traders and other market participants over the world. With no centralized location of trades, the forex market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide across almost every time zone. The Forex Market is the most liquid market and its high liquidity means that prices can change rapidly in response to news and short-term events, creating multiple trading opportunities. To get more idea about it, let’s take a closer look at forex market history. How to Trade on Forex Market. The trade that takes place in Foreign exchange market involves simultaneously the buying of one currency and the selling of another.

This is because the value of one currency is relative to the other currency and is determined by their comparison. From a retail trader’s perspective Forex trading is the speculation on the value of one currency relative to another. Each currency pair can be thought of a single unit consisting of a “base currency” (the first currency) and a “counter (or quoted) currency” (the second currency) which can be bought or sold. It shows how much of the counter currency is needed to buy one unit of the base currency. So, in the EURUSD currency pair EUR is the base currency and USD is the counter currency. If you expect the price of Euro to increase against the price of the U. S. dollar you can buy the EURUSD currency pair. While buying a currency pair (going long) the base currency (EUR) is being bought, whereas the counter currency (USD) is being sold. Thus, you buy the EURUSD currency pair at a lower price to later sell it at a higher price and as a result make a profit. If you expect the opposite situation, you can sell the currency pair (go short), meaning sell Euro and buy the U. S. dollar. However, the risk is always there. If you buy Euro against the U. S. dollar, expecting that Euro is going to rise in price, but instead the U. S. dollar strengthens, you will then suffer losses. So, besides the benefit that you can make from trading, you should always consider the risk involved in it. As you could see the foreign exchange market is not so complex to understand and not so dangerous to enter.

You can become one of its participants in a few minutes and start earning money more than easily. How to learn Forex trading and specifically how to use the online trading platform are thoroughly presented on our website. You can read our educational materials and trading e-books which will help you understand the essence of Forex trading, discover its benefits, learn how to trade effectively and how to manage your risk. The foreign exchange market is extremely active all day long with price quotes constantly changing. It is the only market that truly operates 24 hours a day and five days a week. Currencies are traded in the largest stock exchanges and marketplaces all over the world: in Zurich, Hong Kong, New York, Tokyo, Frankfurt, London, Sydney and Paris. This means that across almost every time zone the market is active - when the market closes in the U. S. the trading day starts in Tokyo and Hong Kong. The time flexibility is very convenient for traders who have a busy working schedule. They do not need to worry about market opening and closing hours and are free to arrange their trade anytime they want. The chart below provides the working hours of major marketplaces. What is the 'Forex Market' The forex market is the market in which participants can buy, sell, exchange, and speculate on currencies. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The currency market is considered to be the largest financial market with over $5 trillion in daily transactions, which is more than the futures and equity markets combined. Forex Options Trading.

BREAKING DOWN 'Forex Market' The foreign exchange market is not dominated by a single market exchange, but a global network of computers and brokers from around the world. Forex brokers act as market makers as well, and may post bid and ask prices for a currency pair that differs from the most competitive bid in the market. The forex market is made up of two levels; the interbank market and the over-the-counter (OTC) market. The interbank market is where large banks trade currencies for purposes such as hedging, balance sheet adjustments, and on behalf of clients. The OTC market is where individuals trade through online platforms and brokers. From Monday morning in Asia, to Friday afternoon in New York, the forex market is a 24-hour market, meaning it does not close overnight. This differs from markets such as equities, bonds, and commodities, which all close for a period of time, generally in the New York late afternoon. However, as with most things there are exceptions. Some emerging market currencies closing for a period of time during the trading day. The US dollar is by far the most traded currency, making up close to 85 percent of all trades. Second is the euro, which is part of 39 percent of all currency trades, and third is the Japanese yen at 19 percent. (Note: these figures do not total 100 percent because there are two sides to every FX transaction). According to the 2015 Euromoney survey, Citigroup and Deutsche Bank were the two biggest banks in the forex market, combining for more that 30 percent of the global market share. The foreign exchange market – also known as forex or the FX market – is the world’s most traded market, with turnover of $5.1 trillion per day.* To put this into perspective, the U. S. stock market trades around $257 billion a day; quite a large sum, but only a fraction of what forex trades. Forex is traded 24 hours a day, 5 days a week across by banks, institutions and individual traders worldwide.

Unlike other financial markets, there is no centralized marketplace for forex, currencies trade over the counter in whatever market is open at that time. How FX Trading works. Trading forex involves the buying of one currency and simultaneous selling of another. In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future. US Search Mobile Web. Welcome to the Yahoo Search forum! We’d love to hear your ideas on how to improve Yahoo Search . The Yahoo product feedback forum now requires a valid Yahoo ID and password to participate. You are now required to sign-in using your Yahoo email account in order to provide us with feedback and to submit votes and comments to existing ideas. If you do not have a Yahoo ID or the password to your Yahoo ID, please sign-up for a new account. If you have a valid Yahoo ID and password, follow these steps if you would like to remove your posts, comments, votes, andor profile from the Yahoo product feedback forum. What is Forex Trading?

Updated: February 19, 2018. There is no doubt you have heard a lot about the Forex market, especially now with economies in turmoil. People are looking for alternative ways to generate income. On your quest to discover what is forex trading, you’ve no doubt come across claims that it’s a means to generate an “unlimited amount of money”, all from the comfort of your own home. Sounds like the ultimate dream lifestyle, yeah? Forex trading is a profession and it’s just like learning any other profession out there, it is no overnight task. Learning to become a competent, professional full time Forex trader is a process that can take months, even years to achieve. So, we better get started… Forex stands for the ‘foreign exchange’ market. So, what is Forex? It’s the medium used to exchange one currency for another. Let me ask you something. Have you ever traveled to another country? Surely you’ve purchased a product from overseas on EBay? Maybe you simply needed to transfer money to an overseas bank account.

If you answered yes to any of these, you would have needed to exchange currencies on the Foreign Exchange market to complete the transaction. Don’t worry, most of the technical stuff gets taken care of on the banks end, but essentially you’ve already traded on the Forex market. Go you! If I ask colleges what is Forex, they generally think i’m talking about the stock markets. People believe Forex trading is dealing with centralized markets like the New York Stock Exchange (NYSE). People’s perception of the NYSE is that it’s the largest, and most powerful financial market place in the world. This means that’s where all the big money is right? No, that’s incorrect. The Foreign Exchange market is the largest in the world. In fact, it’s about 200 times bigger than the New York Stock Exchange. To put that in perception for you, take a look at the picture below.

Overall, there is approx. 4 trillion dollars traded across the entire Forex market in a 24 hour trading day. Even if you combined all the stock, bond and equity markets together, you still wouldn’t come close to the total size of the Forex market. The Forex market is truly EPIC in comparison to any other financial market in the world. Next time someone asks you what is Forex, you will be able to distinguish the difference from the other more well known markets. Forex trading has become exponentially popular since the implementation of electronic trading. That’s all thanks to the development of the internet. To get started with Forex trading, all you need is a basic computer setup with a reliable internet connection. Another great reason Forex trading has gone viral is because the Forex market gives you the freedom to trade from the comfort of your own home. Most people thrive to achieve the ‘full time Forex trader’ milestone with the goal of becoming their own boss.

But beware, it sounds very appealing but a lot of new traders experience Forex trading failure. One positive note to starting your dream of trading Forex from home is you don’t need any special qualifications to be successful. No need for university degrees in economics or physics, advanced skills in math. You don’t even need to be be in tune with the global financial news, or have your hands on the latest economic data. These are all common misconceptions. In fact, the high school dropout can be more successful with trading than say a doctor, dentist, professor or engineer. The market does not discriminate between IQ scores or your qualifications, it is an equal opportunity for all. But, that doesn’t mean it’s going to be easy. Forex trading is the biggest psychological challenge you will ever face in your life. You need to be headstrong and maintain realistic expectations of trading. For a person to become a successful trader they must undertake an emotional journey that all other traders go through. The successful trader has a cool, calm & collected attitude with hisher emotions which are kept in check at all times. A lot of Forex traders lose money and are washed out of the game repeatedly. Mainly because they couldn’t remain in control, and were overcome by their emotions. Do you think you’ve got what it takes to become a trader?

Most new traders think of the Forex market as a way to get rich quick. Negligence, and bad attitudes towards the markets will wipe out a cocky traders account at alarming speeds. In our Price Action Protocol Course we teach traders how to control risk and maximize rewards. Only by keeping a positive risk reward ratio money management ratio model, can you achieve consistency as a trader, and have the chance to make a career out of Forex trading. Common Forex Terminology. Before we go any further, part of understanding what is Forex will be learning some of the common Forex language or ‘jargon’. It’s used every day by traders and it is critical that you are familiar with these terms to be able to fully absorb any information presented on this site. Don’t worry, it’s not super complex. It’s quite easy, as you may know we keep things simple with our trading and that includes the lingo. Bulls & Bears. You may have heard terms like, “Oh that chart looks very bullish”, or, “that is a bearish price action setup”. These are metaphoric terms that describe whether the market is moving up and down. A bull is somebody who believes that the market will rise. The bull is used here because a bull will generally attack its opponent by using its horns to flick them up in the air i. e. the rising prices. A bear is somebody that believes the market will fall, this was derived from the way the bear attacks its opponents.

Bears generally use their large body weight and powerful arms to knock down is opponent, hence the ‘falling’ prices. The use of bulls and bears as metaphors is believed to have come from the early stock market days, when blood sports like real bull and bear fights were common. Long or Short. Long and short and interchangeable with buy and sell. To go ‘long’ is to open a buy position. To go ‘short’ is to open a sell position. Where the buy button is on some trading platforms you will find a ‘long’ button instead. Or instead of a sell option, you will find a ‘short’ button in its place. There is no difference between the two, just a different way of expressing a trade direction. “I am looking at going long on EURUSD, I am very bullish on that market”, can also be viewed as “I am looking at buying EURUSD, I strongly believe that market is going to rise in value”. “I have opened a short position on the GBPUSD because I am bearish on that market”, can be translated to “I have opened up a sell position on the GBPUSD because I believe that market is going to fall”. Bid Vs Ask Prices. When you open and close trades through your Forex Broker, you will be dealing with two separate prices.

The Bid Price: The bid is the market value, basically the price that you see on the screen is the bid price. The Ask Price: This is the price that your broker is willing to sell you currency for. Of course brokers are a business so they need to be able to make money. How they achieve this is by selling currency to you at a slightly more expensive price than they can get their hands on it for. The difference between the price they can buy currency for and the price they sell it to you for is called the spread. More details on Bid, Ask and spread prices later on in the course. Hopefully now you have a bit more clarity on what is Forex trading. In the next chapter we are going to have a look at the history of the Forex market and see how it evolved into today’s biggest financial market. Forex for Beginners – What is Forex? Here you’ll find forex explained in simple terms. If you’re new to forex trading, we’ll take you through the basics of forex pricing and placing your first forex trades. ‘Forex’ is short for foreign exchange, also known as FX or the currency market. It is the world’s largest form of exchange, trading around $4 trillion every day, and it is open to major institutions and individual investors alike. The aim of forex trading is simple. Just like any other form of speculation, you want to buy a currency at one price and sell it at higher price (or sell a currency at one price and buy it at a lower price) in order to make a profit. Some confusion can arise as the price of one currency is always, of course, determined in another currency.

For instance, the price of one British pound could be measured as, say, two US dollars, if the exchange rate between GBP and USD is 2 exactly. In forex trading terms this value for the British pound would be represented as a price of 2.0000 for the forex pair GBPUSD. Currencies are grouped into pairs to show the exchange rate between the two currencies; in other words, the price of the first currency in the second currency. Some commonly traded forex pairs (known as ‘major’ pairs) are EURUSD, USDJPY and EURGBP, but it is also possible to trade many minor currencies (also known as ‘exotics’) such as the Mexican peso (MXN), the Polish zloty (PLN) or the Norwegian krone (NOK). As these currencies are not so frequently traded the market is less liquid and so the trading spread may be wider. Forex trading spread. Like any other trading price, the spread for a forex pair consists of a bid price at which you can sell (the lower end of the spread) and an offer price at which you can buy (the higher end of the spread). It is important to note, however, for each forex pair, which way round you are trading. When buying, the spread always reflects the price for buying the first currency of the forex pair with the second. So an offer price of 1.3000 for EURUSD means that it will cost you $1.30 to buy €1. You would buy if you think that the price of the euro against the dollar is going to rise, that is, if you think you will later be able to sell your €1 for more than $1.30. When selling, the spread gives you the price for selling the first currency for the second. So a bid price of 1.3000 for EURUSD means that you can sell €1 for $1.30. You would sell if you think that the price of the euro is going to fall against the dollar, so you can buy back your €1 for less than the $1.30 you originally paid for it. Calculating your profit. Take another example.

Suppose the spread for EURGBP is 0.8414-0.8415. If you think the price of the euro is going to rise against the pound you would buy euros at the offer price of 0.8415 per euro. Say in this case you buy €10,000 at a cost to you of ?8415. The spread for EURGBP rises to 0.8532-0.8533 and you decide to sell your euros back into pounds at the bid price of 0.8532. The €10,000 you previously bought is now therefore sold for ?8532. Your profit on this transaction is ?8532 minus the original cost of buying the euros (?8415) which is ?117. Note that your profit is always determined in the second currency of the forex pair. Alternatively, suppose in the first instance you think the price of the euro is going to fall, and you decide to sell €10,000 at the original bid price of 0.8414, for ?8414. In this case you are right and the spread for EURGBP falls to 0.8312-0.8313. You decide to buy back your €10,000 at the offer price of 0.8313, a cost of ?8313. The cost of buying back the euros is ?111 less than you originally sold the euros for, so this is your profit on the transaction.

Again your profit is determined in the second currency of the forex pair. Spread betting or CFD trading. InterTrader provides two different vehicles for trading forex: spread betting and CFDs. Both of these products allow you to speculate on the movements of currency markets without making a physical trade, but they operate in slightly different ways. With spread betting you stake a certain amount (in your account currency) per pip movement in the price of the forex pair. So for instance you might buy (or sell) ?10 per pip on USDJPY, to make ?10 for every pip the US dollar rises (or falls) against the Japanese yen. Forex traders have been using spread betting to capitalise on short-term movements for many years now. Find out more about spread betting. With CFDs you buy or sell contracts representing a given size of trade. So you might decide to buy 1 contract of GBPUSD, which (with InterTrader) represents a trade of ?10,000. Your profit or loss is calculated in the second currency, in this case US dollars, and then converted (if necessary) into your account currency. Find out more about CFDs. Either way you don’t have to provide the full currency value to open your position. Instead you put down a margin deposit, which is a fraction of the full value.

And you don’t actually buy or sell any currency: you are opening a speculative position on the change in value of the forex pair. Your profit or loss is realised when you close your position by selling or buying. What is forex? Quite simply, it’s the global market that allows the exchange of one currency for another. If you’ve ever traveled to another country, you usually had to find a currency exchange booth at the airport, and then exchange the money you have in your wallet into the currency of the country you are visiting. You go up to the counter and notice a screen displaying different exchange rates for different currencies. You find “Japanese yen” and think to yourself, “WOW! My one dollar is worth 100 yen?! And I have ten dollars! I’m going to be rich. ” When you do this, you’ve essentially participated in the forex market! You’ve exchanged one currency for another. Or in forex trading terms, assuming you’re an American visiting Japan, you’ve sold dollars and bought yen. Before you fly back home, you stop by the currency exchange booth to exchange the yen that you miraculously have left over (Tokyo is expensive!) and notice the exchange rates have changed. It’s these changes in the exchanges rates that allow you to make money in the foreign exchange market. The foreign exchange market , which is usually known as “ forex ” or “ FX ,” is the largest financial market in the world.

Compared to the “measly” $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its $5 TRILLION a day trade volume. That’s trillion with a “t”. Let’s take a moment to put this into perspective using monsters… The largest stock market in the world, the New York Stock Exchange (NYSE) , trades a volume of about $22.4 billion each day. If we used a monster to represent the NYSE, it would look like this… Looks intimidating. Some may even find it sexy. You hear about the NYSE in the news every day… on CNBC… on Bloomberg…on BBC… heck, you even probably hear about it at your local gym. “The NYSE is up today, blah, blah”. When people talk about the “market”, they usually mean the stock market. So the NYSE sounds big, it’s loud and likes to make a lot of noise. But if you actually compare it to the forex market , it would look like this… Oooh, the NYSE looks so puny compared to the forex market! It doesn’t stand a chance! Check out the graph of the average daily trading volume for the forex market, New York Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange: The currency market is over 200 times BIGGER!

It is HUGE! But hold your horses, there’s a catch! That huge $5 trillion number covers the entire global foreign exchange market, BUT retail traders (that’s us) trade the spot market and that’s about $1.8 trillion . So you see, the forex market is definitely huge, but not as huge as the others would like you to believe. We don’t like to exaggerate. We just keepin’ it real. Do you feel like you already know what the forex market is all about? We’re just getting started! In the next section, we’ll reveal WHAT exactly is traded in the forex market.

Part 1: What Is Forex Trading ? – A Definition & Introduction. An Introduction to FOREX Trading: This free Forex mini-course is designed to teach you the basics of the Forex market and Forex trading in a non-boring way. I know you can find this information elsewhere on the web, but let’s face it; most of it is scattered and pretty dry to read. I will try to make this tutorial as fun as possible so that you can learn about Forex trading and have a good time doing it. Upon completion of this course you will have a solid understanding of the Forex market and Forex trading, and you will then be ready to progress to learning real-world Forex trading strategies. What is the Forex market? • What is Forex? – The basics… Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market in the world with an average daily turnover of $3.98 trillion. The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. It should be noted that there is no central marketplace for the Forex market; trading is instead said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking the other side of it…they ‘make the market’ for you. When you buy a currency pair…your broker is selling it to you, not ‘another trader’.

• A brief history of the Forex market. Ok, I admit, this part is going to be a little bit boring, but it’s important to have some basic background knowledge of the history of the Forex market so that you know a little bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell: In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise of the gold standard. The gold standard was dropped around the beginning of World War 2 as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value. The world then decided to have fixed exchange rates that resulted in the U. S. dollar being the primary reserve currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’ and it happened in 1944 (I know you super excited to know that). In 1971 the U. S. declared that it would no longer exchange gold for U. S. dollars that were held in foreign reserves, this marked the end of the Bretton Woods System. It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency exchange market, although it did not become widely electronically traded until about the mid 1990s. (OK! Now let’s move on to some more entertaining topics!)… What is Forex Trading? Forex trading as it relates to retail traders (like you and I) is the speculation on the price of one currency against another.

For example, if you think the euro is going to rise against the U. S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U. S. dollar strengthens, you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not only the reward. • Why is the Forex market so popular? Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you will need to reach your goals in the Forex market: Ability – to take a loss without becoming emotional. Confidence – to believe in yourself and your trading strategy, and to have no fear. Dedication – to becoming the best Forex trader you can be. Discipline – to remain calm and unemotional in a realm of constant temptation (the market) Flexibility – to trade changing market conditions successfully. Focus – to stay concentrated on your trading plan and to not stray off course. Logic – to look at the market from an objective and straight forward perspective. Organization – to forge and reinforce positive trading habits. Patience – to wait for only the highest-probability trading strategies according to your plan. Realism – to not think you are going to get rich quick and understand the reality of the market and trading. Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market at all times.

Self-control – to not over-trade and over-leverage your trading account. As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can make you a lot of money fast or lose you a lot of money fast. The key to money management in Forex trading is to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with losing that amount of money, because any one trade could be a loser. More on money management later in the course. • Who trades Forex and why? Banks – The interbank market allows for both the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much is done by proprietary traders who are trading for the bank’s own account. Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign countries and also to sell goods or services in foreign countries. An important part of the daily Forex market activity comes from companies looking to exchange currency in order to transact in other countries.

Governments Central banks – A country’s central bank can play an important role in the foreign exchange markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try and stabilize the market. Hedge funds – Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature. This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of the currency; instead, the transaction was executed with sole intention of speculating on the price movement of that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that control and speculate with billions of dollars of equity each day in the currency markets. Individuals – If you have ever traveled to a different country and exchanged your money into a different currency at the airport or bank, you have already participated in the foreign currency exchange market. Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate transactions in foreign securities. For example, an investment manager controlling an international equity portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign securities they want to purchase. Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers. Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market.

Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price (more on this later). Advantages of Trading the Forex Market: • Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions. • Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade whenever you want from Sunday around 5pm EST to Friday around 4pm EST. • Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin trading the same day in some cases. Straight through order execution allows you to trade at the click of a mouse. • Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks. • Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection. • Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities. • Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets. While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both the potential for reward and risk.

Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you could lose on any given trade you take.



Articles:

  • What is forex market