Forex Tutorial: What is Forex Trading?

 


Currency futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. More on money management later in the course.

Why traders choose FOREX.com


Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. 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.

So here is the history of the Forex market in a nutshell:. In , 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. In the U. It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 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. Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. Confidence — to believe in yourself and your trading strategy, and to have no fear. Discipline — to remain calm and unemotional in a realm of constant temptation the market. 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. 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.

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. 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. 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. They can use their substantial foreign exchange reserves to try and stabilize the market. 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 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. Advantages of Trading the Forex Market: This means dense liquidity which makes it easy to get in and out of positions. There is no opening bell in the Forex market. Straight through order execution allows you to trade at the click of a mouse. 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. Jump To Next Chapter — Part 2: What Is Forex Trading?

What is Professional Forex Trading? What is Fundamental Analysis? What is Price Action Trading Analysis? Introduction to Forex Charting. Common Forex trading mistakes and traps. What is Technical Analysis. How to Make a Forex Trading Plan. The Psychology of Forex Trading. Forex trading is not something to take lightly. If you truly want to be successful at forex trading, you must be prepared to invest the time and hard work to acquire the three factors for success — knowledge, experience, and emotional control.

The staff at Forextraders. Each of the forex brokers presented below can provide this demo account for your early development phase and continued practice thereafter. If you are new to forex trading, we really recommend that you start out by reading our education section. Every page of this website is dedicated to these three factors in some fashion. Whether you consider yourself a beginner, intermediate or expert level trader, we guarantee that there is something new for you to learn here.

And not only do we strive to be the best educational resource for everything related to forex trading, we are also one of the fastest growing forex trader communities on the web today. Inbox Mrs Maria today so you too can get started https: Sections of this page.

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