What is Forex?
Forex is an abbreviation for the Foreign Exchange Market and can also be referred to as “FX.” It’s the largest financial market in the world, trading $5 Trillion a day. To put that into perspective, the New York Stock Exchange trades a little over $22 billion a day.
Trading in the Forex market involves buying and selling currency. Currency is traded in pairs, so you’re buying one currency while selling another. For example, one of the most commonly traded currency pairs is the Euro and US Dollar, abbreviated as EUR/USD. When you place a “buy” trade, you are buying the Euro and selling the US Dollar. When you sell the pair, you’re selling the Euro and buying the US Dollar.
Is it easy to trade in the Forex market?
No. Contrary to the multitude of YouTube videos and sales propaganda, trading Forex is not easy. If you notice at the bottom of any site that deals in the Forex market, there’s a disclaimer that warns people it’s easy to lose money. The flip side is, when you educate yourself and manage your risk by being fiscally responsible, it is possible to make large amounts of money.
Luckily, the Forex market is only two dimensional. It only moves up and down, so buying and selling decisions are based on one of two movements.
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Why trade Forex?
Approximately 80% of traders are trading for speculation. They expect to profit from the change in value between currency pairs.
The remaining 20% of the market is the corporate market simply exchanging its currency. For example, a large multinational company like McDonalds may be changing its Japanese Yen into US dollars.
The forex market offers very low transaction costs, so you can start trading with as little as $200. Although the barrier to entry is low, it’s recommended to start with $400 to ensure you are liquid enough to weather a market spike or drop.
Am I trading real money?
You’re not actually trading money. You’re buying and selling currency pair predictions. If you use the EUR/USD as an example, and you predict the Euro will rise in value against the US Dollar, you’re paid if your prediction is correct. If your prediction is wrong, you don’t make money on that trade at that time.
Depending on your trading style, you can hold onto your trade until the market switches and the Euro gains against the US Dollar and your trade becomes profitable.
What currencies are traded?
There are a variety of currency pairs that differ from broker to broker. The most common pairs are:
EUR/USD – Euro / US Dollar
GBP/USD – British Pound / US Dollar
USD/JPY – US Dollar / Japanese Yen
USD/CHF – US Dollar / Swiss Frank
How is Forex traded?
Forex is traded through a Forex broker. Traders can sign up online and download one of the trading platforms, like MT4, onto their computer or mobile device and start trading instantly.
What is a Pip?
Pip stands for Percentage In Point. It’s the smallest increment that a currency pair can move. For example, if the EUR/USD moves up from 1.2000 to 1.2001, the increase is one pip.
What’s the difference between the Forex market and the stock market?
Although the charts look similar, the forex market is so large, no one controls it. Due to the nature of the stock market, large corporations and banks control the market.
When can you trade Forex?
The markets are open 24 hours a day, five days a week, Monday to Friday. The market actually opens on Sunday night, but the main trading starts on Monday morning.
How do you make money in the Forex Market?
You make money buying and selling currency pairs. You choose whether to buy or sell a currency pair depending on what the market is doing. For example, if you are trading the EUR/USD and you believe the Euro will gain against the US Dollar, you buy. If you believe the Euro will lose momentum, you sell.
How do you know which way the market is going to move?
You don’t. Even the most seasoned pros lose some trades. The Forex market is highly volatile and can move up and down very quickly. You can, however, make an educated guess at how the market is going to move using different analytical tools.
The three types of analysis are technical, fundamental, and sentimental. Technical analysis is the study of price movements using the charts. Fundamental analysis uses social, economic, and political factors to estimate the effect of supply and demand. And Sentimental analysis is based on gut feel. It depends on what the trader feels the market is going to do based on past experience.
What’s a Lot?
A standard lot is 100,000 units, a mini-lot is 10,000 units and a micro-lot is 1,000 units. On a one pip movement in the EUR/USD market, your profit is $10 on a standard lot, $1 on a mini-lot and 10 cents on a micro-lot.
Where is the market located?
Unlike the stock market that has physical trading locations, the Forex market is traded all over the world by banks, corporations, investors and governments.
What is the best way to get involved in the market?
Invest $400 and get started. You have the option to open a demo account and pretend trade, but since you don’t have any skin in the game, your results will be much different than when you’re trading your own money. Trading with a demo account is like playing a video game, there are no consequences to your actions, so there’s no real motivation to learn to trade profitably. If you’ve got a bit of your own money on the table, it’s real. You’ll become much more aware of how to trade successfully and ultimately become a much better trader.
If you want to simply invest some money and let a professional trader trade for you, you can also do that. It’s called mirror trading. You simply sign up for a Forex account with a broker and then sign up with a mirror trader and you get to trade what he trades.
How much money do I need to invest to start trading?
Depending on the broker, you can start trading for as little as $100. The difficulty with starting with such a small amount of money is, it doesn’t allow you the freedom to experiment in the market as you learn how to trade. You will most likely lose money in the beginning, so you need enough of a cushion to ensure you don’t lose it all before you start making some. If you start with $1,000, you give yourself a pretty good chance of learning how to trade and the style that suits you. At the very minimum, start with $400. If you start off by trading micro-lots, 0.01 of a lot, you’ll learn how the market reacts and how you react to the market. You’ll only make a few cents or dollars on your trades, but as you get better at reading the market, you can increase your trading amount.
How much time does it take to trade?
Trading can take as little as fifteen minutes a day, depending on how you trade. You can set your trades in the morning and evening and go to work during the day. When you place your trade, you also set a ‘take profit’ point. If the market hits your ‘take profit’ the money is deposited into your account.
Alternatively, you can spend several hours a day watching the market and taking advantage of incremental moves.
What tools do I need?
At the very basic level, you need Forex software that you download from your broker. If you want to up your game a bit, you may also want to include additional analysis tools that help you determine which way the Forex market is likely to move. Two very helpful analysis tools are:
Forex Trendy – Robotically scans the markets for you and sends you alerts when markets have the most profit potential. The system is web-based, so you don’t have to download any software onto your computer. Set this system to scan as many markets as you want and set the audible warning to signal you when trades are most likely to be profitable.
Trading Oracle – Forex Signals
Read the review here
The Trading Oracle is a custom indicator that you load onto your MT4 Forex trading software. It was designed to send you signals for the binary options market, but it works excellent for the Forex market too. It gives you trading messages that tell you when there is the least amount of risk for trades. This allows you to capture more profitable trades. It also provides you with Fibonacci indicators to help you gauge when to buy and when to sell.
What are the advantages of trading forex?
You can do it in the background while you have another job. Set your trades in the morning and evening and let the market work its magic during the day.
There is a very low entry point. You can start trading with as little as $200 with most brokers, although it’s recommended to start with a very minimum of $400. The more capital you invest, the more profit you can make. It’s also very easy to lose money in this market, so the key to success is proper risk management.
How does trading forex differ from trading stocks or futures?
Currency trading doesn’t take place on a regulated exchange like stocks and futures. There is no central governing body, no clearing houses, no arbitration panel and no one controls major shares of the market.
There are no limits to the size of your trades, as there are in the futures market. If you have a few billion dollars to invest, you are free to do so. If you get an “insider tip” that the Bank of Canada is going to raise interest rates next week, you can buy as many Canadian dollars as you want and you won’t be prosecuted for trading with inside information.
The market trades twenty four hours a day, five days a week, so there are seldom any gaps in price.
With an estimated $5 trillion traded daily, the forex market is the largest, most accessible market in the world.
Do you pay a fee for each forex trade?
There are no fees or commissions in the FX market. Instead of brokers, like in the stock market and futures market, the forex market operates with dealers. Instead of charging a fee or commission the forex dealer makes their money on the bid-ask spread. After the trader covers the spread every pip is pure profit.