If you read this article – what is forex – I guess you are a newbie. I see how many people are interested in forex market trading. I noticed this trend in 2009 – 2010, during the global economy crisis. Many people started to find additional ways to earn money. In the same period, I could also call myself a newbie, but the wasn’t so much information then as there is today. So let’s begin by introducing what is forex.
Forex (FX) is a foreign exchange, but it shouldn’t be confused with market exchange. Forex is a decentralized market. It is the biggest market in the world. Even all of US stock exchanges in total don’t match the size of the forex market. Today in Forex there is about 5 trillion average turnover per day. By comparison, NYSE exchange turnover per day is around 50 billion per day.
Forex is the market for trading currencies. Currencies are necessary for international business, for example, when Japanese companies sell their cars in Europe, they need to change EUR to JPY for their internal operations. The forex market is a most liquid market in the world.
The FX market is similar to other financial markets, if you think that EUR price will rise, you buy it, just like you do with stocks. If you imagine stock market, for example, Google stock (Goog), are one thing, in the FX market always are two currencies, let’s say EUR/USD. If you think that the EUR will rise you buy EUR/USD, if you believe that the USD will rise, you sell EUR/USD. It means that you can trade currency pair and make it as buy position or as sell position.
Another important factor about Forex market – currencies trade 24 hours per day, from Sunday midnight to Friday evening.It is much easier to avoid gaps, because the market opens once per week ( On Sunday) and not every day like other stock markets.
Also, you can use leverage in Forex market. It means you can trade with 1000 $ like having 100000 USD if you have 1:100 leverage. This leverage means that you need only 1% of total amount to make your trade. Keep in mind that leverage is not only about opportunities to get profit like trading with 100000 units, but at the same time, it’s a threat to get the loss like you are trading 100000 units. Leverage is like a knife if a surgeon uses it – he can save lives, but if it killer uses it – its death. This comparison means that you have to learn how to use leverage, so you don’t destroy your deposit.
Usual trading instruments in Forex market are – spot, future, option, swap, forward.
The most popular is the spot trading; this trading type offers most of the brokers. The next most popular instrument – is the future trading. Futures are trading on exchanges.
Forex market is a great opportunity to make money, if you know it well and has the skills for it. As for newbies, who imagine that FX it is a money making machine just by pressing sell or buy, there is only one way – lose money. Many people believe that they could earn money for the first month, quit their daily jobs and lie on the beach. It’s the most popular mistake that newbies do. If you are interested in trading forex, you have to shape your expectations better. It means that you have to prepare to learn many things, practice again and again and learn after that. Only then you can make money by trading Forex market. The first lesson you could learn in the first month of trading is to avoid losses and try to break even. I hope, after reading this article, it’s more clearly what is forex.