What is Forex trading all about? The Forex market was once limited only to financial institutions and wealthy investors. But internet technology has changed everything. It brought the Forex to your computers and mobile devices. Today, hundreds and thousands of retail investors trade and explore market opportunities daily. It’s the fastest and most rapidly changing financial market and is open to all investors.
You can start trading by opening an account with a retail broker. However, trading is not as easy as just opening the account. The right way to trade is when you learn and gain experience.
Chart by TradingView
What Is Forex Trading?
Forex or Foreign Exchange trading is where you can speculate if one currency will get stronger or weaker relative to another. Nearly 180 tradeable currency pairs exist, but not all are actively traded. Most of the trade takes place in the seven major currency pairs, and all 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 comprises the U.S. dollar.
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. Let’s see how the Forex Market works and if it’s legal.
Forex Hours
The Forex market operates 24 hours daily and goes by the trading sessions. The sessions cover the global time zones, making trading Forex around the clock possible. Most significant trading sessions occur 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, followed by the New York session. The trading activity peaks further when the timing of these two sessions overlaps.
Markets
Forex trading is performed in various markets, such as futures, forward markets, and spot markets. The Chicago Mercantile Exchange (CME) is one of the largest future currency exchanges 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 by the International Bank of Settlements shows that the share of spot transactions is nearly 20 percent.
How Does Forex Trading Work?
Forex is a decentralized market that connects everyone worldwide through a global computer network. The major players in this market are the central banks, commercial banks, investment firms, large multinational companies, FX brokers, etc.
The big players, like the central banks, buy and sell currencies to pursue their monetary policies. This is called the central bank intervention. Commercial banks, investment firms, and multinational companies 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 peaked at $5.2 trillion compared to only $500 billion in 1977.
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 by learning about the currency pairs, as it is the first thing you will encounter. Once you understand currency pairs, learn 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 identify the support and resistance levels.
To do that, you must learn about technical analysis tools and indicators such as moving averages, Bollinger bands, Relative Strength Index, Stochastic, etc.
Forex trading is a vast field, and there is 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.
Frequently Asked Questions
If you don't have much money to trade Forex, $100 to open an account would be enough. Make sure you've practiced trading Forex so you don't blow through your $100.
Forex trading isn't easy for beginners. It takes time, study, and practice for newbies to get the hang of the lingo, charts, and trading hours.
Forex traders can make money if they're skilled enough in their strategy. Like with any trading style, it takes a lot of time and effort to become good.
