5 Basic Forex Market Concepts

By Bob1000pipbuilder | Apr 25, 2022 5 Basic Forex Market Concepts

Blog article provided by brokertested.com

Forex trading is one of the most lucrative financial markets in existence. However, it’s also complex and daunting to enter without knowing what you’re getting into – there are so many things that need understanding before making any decisions.

If you are looking for an easy way into this market, then it is worth considering all that entails when starting out – everything from what types or classes are available and how much money traders need before they can begin trading on their own account will depend largely upon where someone falls within those categories. 

There are some basic concepts every trader needs to know. We are going to introduce 5 of them. 

Price Movement Prediction

When you trade in the Forex market, it is not just your own currency that matters. The two most common types of trades are betting on future movements either in the spot market or as futures contracts – if a trader thinks Europe will grow faster than America they might sell dollars and buy euros (or vice versa). 

The same thing is with the future. Futures are a way for traders to exchange currencies at an agreed upon price on future dates. If one of the parties involved in this contract gets more than what was originally bought or sold, then he will have earned some money from his trade.

Leverage Usage in Forex Trades

Leverage is a powerful tool in the financial markets. It can be used by all traders, but should only come with care and understanding of how much you are risking on each trade, especially as a beginner who does not know yet what to do.

Usually the accessible leverage is in 100:1 ratio. 

Depending on the broker you choose, the amount of offered leverage is different. This is mainly due to whether your broker has high leverage or not. Check the best regulated high leverage brokers here. 

Forex Yield and Return

It is important to remember that yield drives return. Every currency comes with an interest rate set by the country’s central bank. Traders can accrue difference between two different rates as they trade one against another- this is called carry trading. It is the ‘’method’’ of making money by exploiting differences in interest rates between two different currencies. Note that it is a risky strategy with huge potential rewards, but also comes at great risk if things go wrong. 

Way of winning with Carry Trades

To be a successful carry trader, you need to pay attention not just when rates are changing but also their trend. A good way of doing this is by pairing currencies that have rising interest rates with those whose prices fall as they mature in order for the trade’s profit potential without being too risky or obvious. It is important to understand the underlying economics of each country you are investing in order for it to be most successful and safe. 

Main Majors of Forex

A foreign currency trader has to follow just eight major economies when making trades, but those are not necessarily the only ones that will matter. Informally known as “The Majors,” these currencies make up most of your transactions in forex markets and can have a huge impact on how well you do financially. So if you want to trade in this market, it’s important for your portfolio strategy not only to know who these economies are but also their respective currencies. Here are they:

United States (U.S. dollar)

Eurozone (Euro)

Japan (Japanese Yen)

United Kingdom (Pound Sterling)

Switzerland (Swiss Franc)

Canada (Canadian dollar)

Australia (Australian dollar)

New Zealand (New Zealand dollar)


The Forex market has always been one of the most accessible and largest financial markets in the world. With electronic trading networks making it easier than ever for people to get into investing – everyone has plenty of opportunity now.

There are some concepts that every trader needs to know.

The article presented the main 5 of them. All of them matter in the world of forex trading and you should consider all of them before starting your trading journey.

After learning these concepts, you will be able to choose a broker and start the trading process. It is not an easy task as well, you have to check some criteria before making the right choice. For example, Forex brokers in UK are regulated by the FCA (Financial Conduct Authority) as well as brokers in different countries are regulated by other authorities. Comparing all pros and cons, select the suitable one for you, take the risk and start trading.