Forex 101

By Bob1000pipbuilder | Feb 04, 2020 Forex 101

What is Forex?

Foreign exchange trading, or Forex trading for short, is the buying and selling of currencies. This all happens in the global Forex market which is the largest of its kind in the world, with a  turnover of over $5 trillion every day.

Beyond the retail trading of currencies, Forex trading is an activity that permeates almost every facet of life. When you are travelling, you will have to change the currency you are holding for that of the country you are going to.

For that purpose, every airport has a currency exchange desk. For example, if you are leaving the UK for the US on vacation, you will have to exchange your pounds for dollars, the legal tender of the country you are travelling to. Depending on the rate at the time of your exchange, you can get more dollars or less.

Large corporations also engage in Forex trading. Known as commercial traders, many companies have to buy and sell currencies when dealing with their foreign business partners. Imagine a large American corporation that uses a lot of gold which it imports from, say, China. Such a company will have to participate in commodity and Forex trading for its business activities and to hedge against some risks.

The Nature of the Forex Market

Exchange rate fluctuations are an inevitable reality in international business. Currencies rise and fall against each other every day. Today, the USD (United States Dollar) could be worth more in the AUD (Australian Dollar) than it was yesterday. Tomorrow, it could be less. It is these fluctuations that enable traders to make money with them.

The Forex Market is the largest financial market in the world. Approximately $5 trillion worth of transactions is conducted in it every day. The stock market is not even close. The New York Stock Exchange, the NYSE, despite being the world’s largest stock market, has a daily trading volume of just $23 billion.

Even though retail Forex trading accounts for only $400 billion of the daily total trading volume, Forex trading, of course, is still huge. Apart from the size, the Forex market has other interesting features that make it ideal for everyone.

  •     – Strong Regulation.

At a time, Forex trading was notorious for scams. Many individuals fell prey to different fraudulent machinations such as illegal brokerage services. Primarily, the major reason for that was the no or lax regulatory framework for the then-emerging asset class. However, the Forex industry is now more regulated than ever before.

Fortunately, Forex brokers now have to be registered with reputable regulatory authorities before they can sell their services to the public. For example, in the United Kingdom, brokers are licensed by the Financial Conduct Authority (FCA).

  •     – Low Entry Barrier.

You might be thinking that all these perks of Forex trading will come at an expensive price. That is, you might be thinking that to start participating in Forex trading, you will need a lot for your capital outlay. However, that is not true. In fact, it has now become commonplace for Forex brokers to require as little as $10 in minimum deposit.

Of course, starting with that small amount is not advised. But it drives home a message: you really do not need too much before you can start trading Forex and earning from it!

  •     – 24-Hour Access.

If you are looking for a flexible financial market to participate in, search no more. It is Forex. The Forex Market is open 24 hours every day, from Friday afternoon to Sunday evening. No other financial market, including the stock market, has this feature.

Because of that, it does not really matter what you do and how much time you are willing to devote to trading. The Forex market has got you. For example, will you prefer to trade at night? The Forex Market is on. Do you work night shifts at your job, so you prefer to trade in the day? There will still be activities in the market when you want to trade.

  •     – Risks and rewards

The earning potential of Forex Trading is well discussed and examples abound. George Soros once made $1 billion on a single Forex trade betting against the British pound. However, as with any trading or investment activity there are risks involved and you can make significant losses if you do not know what you are doing.

Forex trading will give you the opportunity to profit from both falling and rising currencies. For example, when a currency is rising, you buy it and make money on its way up. Conversely, if it is falling, you sell it and make money as it comes down.

How to Trade Forex

While you do not need much in capital to trade Forex, you, however, need much in discipline and knowledge. The statistics are scary: roughly 95% of retail traders lose money in the Forex market! To put that in context, that means 9 out of every 10 of that category of traders lose their money trading Forex.

What is responsible? Technical and emotional reasons. Technical in the sense that most of those traders lack a basic understanding of how to trade. Only a few are familiar with the basic concepts, such as Fundamental and Technical Analyses, which are central to successfully trading Forex Market.

Then, emotions are another reason those traders do not succeed. Naturally, every human has the tendency to not admit being wrong when they are. This tendency can become highly pronounced in Forex and explains why many Forex traders hold strongly to their losing positions in the hope that, somehow, they will turn back in their favour. Needless to say, they often end up getting further burned.

Thus, as a newbie, if you want to be a Forex trading success, you should work on these two major limiting factors. At 1000pip Builder, with the proven performance of our signals, expert analysis and 5-star rated support, we can help you do just that while also guiding you towards ultimately achieving your goals.

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