What Is Forex Trading and How Does It Work?

What is Forex trading all about? Forex market was once limited only to financial institutions and wealthy investors. But internet technology changed everything, it brought the Forex to your computers and mobile devices. Today, hundreds and thousands of retail investors trade and explore market opportunities every day. It’s the fastest and rapidly changing financial market and open to all investors.

You can simply start trading by opening an account with a retail broker. However, the actual trading is not as easy as just opening the account.

The right way to trade is when you learn and gain experience. Our Forex Educational Courses will take you through all the steps and educate you enough to become a successful trader.

What is Forex?

  • Forex or Foreign Exchange trading is the activity where you can speculate if one currency will get stronger or weaker relative to another currency. There are nearly 180 tradeable currency pairs but not all pairs are actively traded. In fact, the majority of the trade takes place in the seven major currency pairs and all of the major currency pairs include the USD dollar.  

The U.S dollar is one of the most dominant currencies in the Forex market. According to the International Monetary Fund (IMF), about 64 percent of the global Foreign Exchange is comprised of the U.S dollar.

We’ll be learning about the Currency Pairs in the next tutorial. Forex market differs from the traditional stock markets, it connects through a non-centralized computer network and provides you with the opportunity to trade 24 hours 5 days a week.

Now let’s see how the Forex Market works and if it’s legal.

How Does Forex Market Work?

What is Forex

Forex is a decentralized market that connects everyone around the world through a global computer network. The major players in this market are the central banks, commercial banks, investment firms, large multinational companies, FX brokers, and so forth.

The big players like the central banks buy and sell currencies to pursue their monetary policies. This is called the central bank intervention. The commercial banks, investment firms, multinational companies all go through the Forex market either for currency exchange or to make speculative investments.

Together all the participants make the Forex market one of the biggest in the world. It is now so big that its daily turnover has peaked to $5.2 trillion compared to only $500 billion back in 1977.

Forex Hours

The Forex market operates 24 hours a day and goes by the trading sessions. The sessions cover the global time zones which makes it possible to trade Forex around the clock.

Most significant trading sessions take place in London, New York, Sydney, and Tokyo. The sessions vary in trading volume.

The most active trading session in terms of volume is the London session which is followed by the New York session. The trading activity peaks further when the timing of these two sessions overlap.

Markets

Forex trading is performed in a variety of markets such as the futures market, forward market, and the spot market. The Chicago Mercantile Exchange (CME) is one of the largest future currency exchange in the world.

However, unlike the spot market, the currency futures offer limited trading hours. Large organizations and institutional investors prefer trading in the future and forward markets due to their volume requirements.

The spot market is more popular among retail traders. A survey conducted by the International Bank of Settlements shows that the share of spot transactions is nearly 20 percent.

How to Start Forex Trading

  • As a beginner, education is the most important step in Forex. There are numerous sources of education out there. But at this juncture, you need to start with a basic understanding. First of all, make sure that you don’t get sucked in by the fancy advertisements that offer you Forex education. The ones telling you how much money you can make and how you can quit your daily job. This general hype is usually a selling pitch to entice you to sell something and is not the type of education you want. Keep taking our community’s courses to learn more.

Currency Pairs

Start from learning about the currency pairs as it is the first thing you would encounter. Once you understand currency pairs move on to learning basic Forex terminologies such as PIP, lot, and spread.

Next, you need to learn about leverage. It is the most important part of Forex trading because it can make or break your trading career.

Once you have learned the basics, you can move on to reading the charts and understanding the price action. Start Analyzing the charts to identifying the support and resistance levels.

To do that you need to learn about technical analysis tools and indicators such as moving averages, Bollinger bands, Relative Strength Index, Stochastic, and so forth.

Forex trading is a vast field and it has more to learn than what is mentioned here. If you’re serious about it you need to understand that it’ll take a lot of time, study, and practice to master it. 

You’ll have to spend time on the screens looking at how prices move and how they respect certain levels.

The Bottom Line

What is Forex trading all about? You’ll be learning all that is mentioned above and beyond in this course. At the end of this course, you will have a complete understanding of the Forex market including its basic and advanced terminologies and working principle. 

You’ll also learn about the price patterns and technical analysis using drawing tools and indicators. Finally, at the end of the course you’ll have enough education to build your own trading strategies and be on a successful path. 

So let’s first start with a very basic understanding of Forex. Now that you have basic information on what is Forex and how the Forex market works. Let’s move on to the next tutorial which is Forex Essentials.

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