what is forex

What is Forex and How Can We Trade It?

What is Forex

We bet you wonder what is Forex! If you really do, keep reading the following material!

The term FOREX or FX is an abbreviation of Foreign Exchange. Forex acts as a global international currency trading system. It serves the international business and its transactions in different national currencies. Some of these are American Dollar (USD), Euro (EUR), Great Britain Pound (GBP), Japanese Yen (JPY), Australian Dollar (AUD), etc.

Foreign Exchange Market

Now we will enlighten you about what is Forex Market!

The participants in the Foreign Exchange Market are basically banks, governments, funds, investors or market speculators. These generate Forex transactions the remarkable volume of $4.00 trillion daily.

Trading Forex it is not necessary to physically meet the other side of the transaction, while traders are in a constant communication with each other via different technical means.

what is forex market volume
The Foeign Exchange Market Daily Volumes

Unlike the other markets like the Stock Market, the Forex market is decentralized. There isn’t many physical places, where traders sell or buy currencies. Just the opposite, thanks to the globalization, the participants in the Forex market are able to implement their strategies and transactions online. This way Forex traders could always be up-to-date with the recent market changes via the internet.

Forex Market Hours

Remember, the Foreign Exchange Market works 24/5. The trading week begins with the opening of the markets in Sydney, Australia and it finishes with the closing of the Markets New York, USA.

what is Forex Market Hours
Forex Market Hours

Currency Pair Structure

Every Forex Pair consists of two currencies, which create the currency pair. When you state the value of a currency, you should point it in something, right? For example:

  • The euro is performoing poorly lately
  • How much does it cost?
  • It costs about $1.16 for 1 euro!

The currency that is used as reference is called the counter currency or quote currency. The currency that is quoted in relation is called the base currency. This is how every currency pair is created. Take the EUR/USD for example. It shows how much dollars a single euro costs.

What is forex currency pair

In most cases, the currency pairs’ value is expressed with four decimal places. In other words, you will see four symbols after the “comma”. The last symbol in the price of a Forex pair is called a “Pip” – Price Interest Point. This is considered the most important indicator of a Forex pair’s price. For example, if the EUR/USD price is 1.3245 and we buy the currency pair, when the price goes to 1.3285, we have made a profit of 40 pips!

Basic Currency Pairs

What is Forex Majors

The most traded currency pairs are called Forex Majors. These are:

  • EUR/USD
  • USD/JPY
  • GBP/USD
  • USD/CHF
  • USD/CAD
  • AUD/USD
  • NZD/USD

As you see all of these major currency pair have the US Dollar in there! These are the most traded and the most volatile Forex Pairs on the market.

What is Forex Cross Pairs

These are all the currency pairs, which do not have the US Dollar in them. They are also called Crosses or Minors. Some of these are:

  • EUR/GBP
  • EUR/JPY
  • GBP/JPY
  • GBP/CHF
  • CHF/JPY
  • AUD/CAD
  • AUD/NZD

When you trade a Currency Cross Pair, you first exchange the Base Currency into USD and then the USD into the Quote Currency. This is why they are called crosses – one should simply cross three currencies in order to do the currency exchange.

Already bored? Keep reading and you will learn about the three basic components of the Forex success!

Forex Trading Components

In order to trade currencies, you should have:

Bankroll;
Bankroll Management System;
Analysis;

If you posses these three it will be just a matter of time until you become a successful Forex trader. Let’s go through these three Forex trading components:

Bankroll

What is forex bankroll
Nothing particular to discuss. You either have it, or not. Make sure you do not deposit to small amount of money! Small amounts are not enough to feel comfortable and relaxed while trading. Too much pressure does not help anyone! If you wouldn’t like to risk bigger amounts at the beginning, you can approach some of the many Forex promotions out there. The different online Brokerage Agencies offer various promotions with free starting capitals from $1.00 to $100.00.

Bankroll Management

what is forex bankroll managementThis is probably the most important thing in your trading experience. Bankroll Management means the aggressiveness you would treat your account with. The more (%) you place on a single trading position, the more aggressive you are. Many traders and trading experts advise that you should not invest more than 1%-2% in a single trade. The thing is to have enough capital to recover eventual losses caused due to unpredictable factors like the bad luck. Actually, it is really up to you what amount you are going to invest in your positions. Just remember: There is a really thin line between the aggressive way of trading and the reckless wasting of money. For example, if you risk about 10%-15% of your capital on a single Forex position, you would most likely fail and end up broke.

Forex Analysis

what is forex analysis
There are two types of analysis, which traders implement. These are:

Technical Analysis;
Fundamental Analysis;

What is Forex Technical Analysts

What is Forex Technical Analysts
Technical Analysis relies on previous events on the charts of the Forex pairs. With technical analysis guess price move based on previous price.

Example: If the price goes to a level and then it usually bounces in the opposite direction, then this could happen again. The idea is to trade the price move after the bounce! The same applies for trends in Forex! I bet you now wonder “What is Forex trend?” The trend is an inclined line (upwards or downwards), which marks the price move. When you connect two bottoms of the price with a single line, you just have a line. But when you connect three or more bottoms of the price with the same line, then you have a trend. Three or more points laying at the same line could not be just a coincidence!

What is Forex Fundamental Analysts

What is Forex Fundamental AnalystsFundamental Analysis relies on reports and news releases related with the  governments. Since governments represent currencies, economic news releases affect the respective currency pair. A negative information from a country would have a negative impact on their currency. Positive information from a country would affect the currency in a positive way.

It sounds pretty simple doesn’t it? Actually, it is not! The fundamentalist Pros use a variety of complicated macroeconomic formulas, which assist them to calculate the potential movement of the currency pair.

Conclusion

These are the very thin basics, which you need in order to understand what is Forex. We assure you that there is definitely a lot more to be learned and done in order to start your trading career. If you do not like waiting, well, there is an option even for your case. Most of the brokers offer Demo Accounts, where you do not put any real money in and you trade with virtual money on real currency events. This is probably the perfect way to start your trading career. Just make sure you do not start feeling overconfident after you close a lucky profitable position.  You may think you know what you are doing, while you actually don’t. If you cannot explain your “profitable” trading actions, make sure you do not invest real money in your “strategy”. In other words:

DO NOT GAMBLE! This is not a game and there are real money involved!


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