So why do people get interested in Forex in the first place?
Author : 4 leverage | Published On : 15 Sep 2021
While there is money to be made in Forex trading, it requires specialized knowledge and a lot of discipline, neither of which is easy to obtain. The good news is this course will walk you through everything that you need to know to be successful at Forex trading!
The foreign exchange market, or forex (FX) for short, is a decentralized market place that facilitates the buying and selling of different currencies. This takes place over the counter (OTC) via the interbank market instead of on a centralized exchange.
Without knowing it, you have probably already participated in the foreign exchange market by ordering imported shoes, or more obviously, buying foreign currency when on vacation. Traders are drawn to forex for several reasons, including:
? A wide variety of currencies to trade
? The size of the Forex market
? Differing levels of volatility
? Low transaction costs
? 24 hours a day trading during the week- making it perfect for people who are super busy, just like yourself.
The Forex Market Explained
In a nutshell, the foreign exchange market works like most other markets in that it is subject to demand and supply. Using a very basic example, if there is a strong demand for the US Dollar from European citizens holding Euros, they will exchange their Euros into Dollars. The value of the US Dollar will rise while the value of the Euro will fall.
What Moves the Forex Market?
Tons of macroeconomic events move the market, including:
• Election of a new president/prime minister
• Country-specific factors such as GDP
• Interest rates
So how does one person keep track of it all?
The most successful traders use an economic calendar to stay up to date. When you’re aware of the economic and societal factors that move the market, you can stay ahead- making yourself a pretty profit while doing so.
What Makes Forex So Attractive?
The foreign exchange market allows large institutions, governments, retail traders, and private individuals to exchange one currency for another and takes place via the interbank market (between banks).
The benefit of having forex trade between global banks is that forex can be traded around the clock (during the week). As the trading session in Asia comes to a close, the European and UK banks come online before handing over to the US. The full trading day ends when the US session leads into the Asian session for the following day.
What makes this market even more attractive to traders is that it is by far the most liquid market in the world, with an average daily trading volume of $5.1 trillion according to BIS Triennial Survey 2016. This means that traders can easily enter and exit positions as there are many willing buyers and sellers for foreign exchange
What is forex trading and how does it work?
Many people wonder how to make money trading forex. Fortunately, the basics behind forex trading are quite straightforward. If you think the value of a currency is going to go up (appreciate), you buy the currency. This is known as going “long”. If you feel the currency is going to go down (depreciate), you sell that currency. This is known as going “short”.
Who Trades Forex?
Still, it’s helpful to know all the players who are trading Forex. There are basically two types of traders in the foreign exchange market.
Hedgers are looking to avoid extreme movements in the exchange rate. Big businesses like doing this to reduce their company are exposed to foreign currency movements. Speculators, which is the average trader, probably like yourself, are risk-seeking (and reward-seeking!) who are looking for changes in exchange rates to take advantage of. This includes retail traders, solo traders, and large trading desks at the banks.
Why trade forex?
You may be wondering why you should trade forex in the first place. There are several reasons why people decide to trade Forex.
There are advantages that Forex has over other markets. One reason is that there are low transaction costs. Forex brokers make money on the spread provided (we’ll talk more on this later) when the trade is opened and closed before overnight funding charges are applied. This means that you can trade in a way that is cost-effective, especially when you compare it to other markets such as equities.
Trading forex has many advantages over other markets. There are 4 main advantages:
1. Low transaction costs: Typically, forex brokers make their money on the spread provided the trade is opened and closed before any overnight funding charges are applied. Therefore, forex trading is cost-effective when weighed up against a market like equities, which attracts a commission charge.
2. Low spreads: Bid/Ask spreads are extremely low for major FX pairs due to their liquidity. When trading, the spread is the initial hurdle that needs to be overcome when the market moves in your favor. Any additional pips that move in your favor are pure profit.
3. More opportunities to profit: Forex trading allows traders to take speculative positions on currencies going up (appreciating) and going down (depreciating). Furthermore, there are many different forex pairs for traders to spot profitable trades.
4. Leverage trading: Trading forex involves the use of leverage. This means that a trader need not pay the full cost of the trade but instead only put down a fraction of the cost. This has the potential to magnify your profits but also your losses.