What is "Forex"? How to play in the Forex market

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

With the development of technological progress, many people found it convenient to earn money remotely, working at home in front of their personal computer. Today you can start earning even without special knowledge or big money capital.

The popular Forex exchange provides anyone who wants to start trading with just a few dollars in a personal account.

Forex: what and how it works

Different global organizations constantly need to change currencies to carry out international transactions. In this they are helped by the Forex market, which is rightfully the largest of the existing world markets. On its platforms, more money is exchanged daily than in the markets of the whole world combined. The daily turnover of Forex is more than five trillion US dollars.

The name of the Forex exchange (Forex) comes from the expression "forex exchange", which means "foreign currency exchange". Money on this site is traded at free quotes. PriceThe world currency is constantly changing, and traders sell and buy it in a timely manner. This whole process is the Forex market.

Forex trading takes place only online, since this market is completely virtual.

Forex Emergence

Forex emerged as an international trading platform in 1971 and has been expanding rapidly ever since. In 1977, Forex transactions were made in the amount of 5,000,000 US dollars daily. According to experts, in 2020 the market will gain a daily turnover of 10 trillion.

Traders from all over the world are participating in Forex trading today, and their number is constantly growing.

Forex Participants

The main participants are, of course, banks. It was created at one time specifically for interbank trading. Over time, the list of participants has changed and now they include:

• central and commercial banks;
• investment companies;
• traders;
• insurance companies;
• pension funds;
• international import and export companies;
• dealers and brokers.

All participants can participate actively or passively in the Forex market.

Active participants - those who influence the formation of prices. These are banks and brokers.

Passive participants - those who make deals at the prices offered by active participants. These are investment funds, companies associated with import and export, as well as private investors who work through dealing centers.

Forex Market Relations

Since Forex works continuously, everyone can join its work at any time of the day or night. This site regulates market trade relations, both between large companies and between states. This happens precisely at the expense of trading participants.

Understanding the principles of Forex is not difficult. However, in order to understand all the nuances and versatility of this trading system, to learn how to fully use the financial instruments of the site, it will take years. The guarantee of successful earnings on Forex is only a clear and precise understanding of all the processes taking place on the site.

The difference between Forex and the stock exchange

Many people know what stock trading means and what the stock exchange is. Cryptocurrency trading is somewhat different from buying/selling shares, but not everyone understands what Forex is.

Stocks on the stock exchange require constant monitoring. In Forex, they trade mainly the most popular currencies. You can, of course, deal with rare, more exotic currencies. But the largest bets are made on the world's leading currencies. These are the euro, dollar (USD), British pound (GBP), Japanese yen (JPY), Australian dollar (AUD), New Zealand (NZD) and Canadian dollar (CAD), Swiss franc (CHD).

Unlike Forex, on the stock exchange you can conduct transactions at certain times only on a certain exchange (such as Nyse), and the most inconvenient - only for a few hours a day. Trade currencies in Forexreal time is available around the clock. At the same time, there is no need to even think about which exchange each lot is traded on - the Forex system itself selects the most profitable sites and in this sense, trading on this market is very convenient and comfortable.

Since Forex uses loans when making trades, by investing even a small amount, for example $100, a trader can count on buying up to 2000 specific currency pairs. This is the principle of margin trading.

In practice, this is expressed by the fact that if the price of the selected pair changes by only 0.0001, then the result can be a very solid profit from the investment made. At the same time, buying / selling is very fast, and the volumes are incredibly large.

The Forex exchange receives its commission from all transactions. It is the difference between the selling and buying prices. Naturally, the purchase price is always at least a little higher.

Thus, the Forex exchange does not own physical shares or other documents accompanying currency trading. The system maintains the status of the purchase / sale of each trader and receives a reward for this.

Unlike the stock market, Forex is not driven by participants.

Main advantages of the exchange

• The Forex market has a high volatility, which is convenient and gives everyone the opportunity to earn.
• No specific skills are required to start earning. You can always try your hand at a free demoaccount, take online or real exchange trading courses.
• Forex exchange does not depend on crisis situations in the world. And even in such a situation, when one currency is growing, and the value of another is falling. Forex works with currencies, and since they cannot fall in price to a minimum, you can earn money on the exchange regardless of world economic conditions.

How to start working on the stock exchange

When you first get acquainted with Forex, many questions arise about what Forex is, how to make money on it and not lose your money. How to minimize the risk of loss of balance? This is the main question of trading on any exchange. In this regard, the main recommendation is not to start trading with real money right away, but first practice on a demo account and study exchange training courses.

When you understand how the trading platform works and develop your own strategy, you can move on to trading on a real account. Naturally, in order to trade successfully, you should know the basic terms, the history of the development and emergence of the foreign exchange market, understand the principles of analysis and learn how to use trading tools. Forex forecasts, which are held by brokers and experienced traders, also play a significant role in understanding the trading situation.

Training courses are studied not only by beginners in stock trading, but also professionals periodically turn to them to improve their skills and to keep up with trading trends. Brokerage companies provide high-quality courses for their usersAlpari and Insta-Forex. Typically, such courses are divided into levels and are designed for traders with different knowledge and experience.

A way to earn income without working in the market personally

On Forex even this is possible. It is not at all necessary to trade on your own if you are not confident in your own abilities. The Forex exchange gives you the opportunity to invest your money in the accounts of other exchange users who have proven themselves to be experienced traders. For them, trading is not a hobby, but a profession.

Such an investment is also good because this service is completely transparent. Every day, all those who have invested their funds in the accounts of other traders receive reports on the trading of the account manager. In addition, it is possible to withdraw your money at any time.

Forex basics for beginners

Forex is one of the pillars of the movement of financial investments between states in world trade. With his participation, the international process of buying / selling (exchanging) currencies is much easier, and this mainly attracts large banks. Various companies constantly pay for imports to other countries in the currency of these states. For such an operation, it is required to transfer (convert) the national currency into the required one.

Individuals working on Forex at their own peril and risk only with their own money, can only take part in transactions made by large participants. However, their personal contribution is not so significant. That is, the market provides an opportunity for those who wish, who understands what Forex is, to trade currencies at the pricewhich is currently the most profitable.

When a private trader sells a currency, such as the US dollar, it is exchanged for another, such as the Japanese yen. The components of this procedure are called "pair". So, GBPJPY is a pair that trades British pounds in exchange for Japanese yens. Since Forex uses credit instruments, in such a trade, a trader sells or buys this pair at a price equivalent to 1.5000 per GBPJPY (pair).

That is, the similarity of Forex with the stock exchange is that there is trading in shares, and here in pairs.

How to make money trading Forex

To start earning on Forex, you need to create an account with one of the Forex brokers and fund your account. Usually, most brokerage companies provide the right to deposit funds into trading accounts through many popular electronic payment systems (PayPal, Yandex Money, WebMoney), from a credit card or via bank transfer. If none of these methods is suitable, then you can replenish your account through exchange offices on the Internet, indicating on the service website where to withdraw money from and the wallet number of your trading account received from the broker. Thus, the money will be immediately transferred to the trading account.

No matter how easy it is to replenish your account, it is recommended to start trading on demo accounts in order to understand the principles of the market, learn how to place orders and follow the trend, using Forex rate charts. After all, one seemingly insignificant mistake is enough to in a matter of secondslose all your money.

Basic Forex concepts and tools

• Base currency - is the currency a trader is interested in and usually trades with. For example, in the USDEUR pair, USD is the base currency, and EUR is the quote ("counter-currency") currency.
• Leverage (or leverage) is a loan from a broker, thanks to which you can trade with hundreds of times the balance. For example, with just $100, you can buy 10,000 EURUSD with the right amount of leverage.
• Indicators are special tools for technical analysis. Forex indicators are: trend, oscillators and auxiliary.
• Lot - this is the name of the unit of trade. Distinguish: Standard lot of 1000, 000 points; Mini lot of 10,000 points; Micro lots of 1000 pips.
• Open positions are orders that have not been closed yet.
• Point or Pip (mark) - the minimum price applicable to the currency pair quote. Most currencies have a pip value of 0.0001.
• Sell price (bid) - the price at which a pair can be sold.
• Short position - a parameter that means that the order is placed in the hope that the price of the currency pair will fall.
• Margin is the difference between the sell price and the buy price.
• Stop-loss - an undesirable price in its direction, upon reaching which the order will be automatically closed to avoid further losses.
• Spread is one of the important concepts. This is the difference, measured in points, between the selling and buying price of a pair forperiod of time. Spreads are fixed - a constant value; fixed with the possibility of expansion - under certain conditions, it can expand; floating - a variable value depending on the state of the market.
• SWAP is the transfer of an unclosed trading position to the next trading day (day). It can be both positive and negative. There are trading accounts on which swaps are not charged. Sometimes there are days when trading companies set up triple swaps. This must be found out in advance on the websites of the brokers with whom the trader works. Understanding the meaning of swaps, you can trade on the so-called swap Forex strategies. With such trading, orders are opened and kept open for days, months, and even years. Of course, for this you should choose currency pairs that have the most profitable positive results.

Expert tips on Forex trading

• You should start trading small until you absolutely understand what Forex is and how it works. Do not immediately invest large amounts.
• Be sure to use stop losses.
• Don't use high leverage right away. It is better to use leverage from x5 to x25.
• Only invest real money after sufficient practice on a demo account.
• It is better to start making money on Forex trading on gold and silver than on currency pairs.
• Don't let your emotions control you. If the trade becomes unprofitable, it is better to exit the trade than to try to recoup.

In order to quickly achieve success in Forex trading, experts advise:

• Stay up to date on the best ways to invest.
• Listen to the advice and forecasts of trusted brokers.
• Constantly study charts and indices for technical analysis.
• Take special courses on trading in the market.
• Regularly review reviews of forex brokers, as user opinions are sometimes the most objective.