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What Is Forex About? Introduction to Trading Currencies

What is Forex?

What is Forex About?

Forex refers to the Foreign Exchange market. The ‘FX’ market is a place where you can trade currencies from around the world. Forex traders buy one currency by selling another currency. The transactions occur simultaneously, and as such, forex brokers quote the prices of each currency together. The quotes are therefore named ‘currency pairs.’

Traders seek to make money when the value of one currency rises over the other currency they are trading. The Forex market is the largest and most traded market in the world. The Bank for International Settlements stated that “foreign exchange (FX) markets averaged $5.1 trillion per day in April 2016, according to the 2016 Triennial Central Bank Survey of FX and over-the-counter (OTC) derivatives markets ( ”

Why are Currencies Traded?

Currencies represent a country’s trade value. Anyone who wants to buy anything in another country must convert their home currency to the other country’s currency at some point during the transaction process. The FX market provides the means for the conversion to occur.  

When are Currencies Traded?

Currencies are traded globally 24 hours/5 days a week, beginning on Mondays at 6:00 AM local time in Sydney, Australia. The market closes on Fridays at 5:00 PM local time in New York City, USA.

Where are Currencies Traded?

Unlike stock, bond, and futures markets, currencies are traded over-the-counter (OTC), meaning they are not traded on exchanges like the New York Stock Exchange. Instead, large banks provide most of the liquidity to the world through brokers. Brokers, in turn, offer non-bank individual traders (called retail traders) exposure to the broader FX market through trading platforms.  Retail traders can access Forex trading platforms using their laptop computers, desktops, and smartphones.

How to Make Money Trading Forex

Economic, political, and other factors change over time. As a result, the value of a country’s currency will go up or down with every other country’s currency. As a trader, you can try to forecast which direction a currency will take and try to make a profit.

For example, let’s assume you analyzed economic data from the United States and Great Britain. You believe from your analysis that the price of the Pound will soon fall versus the US dollar. You can place a trade in the FX market, buying a certain number of US dollars by selling the same amount of British Pounds. If you are correct, and the price of the Dollar rises versus the Pound, then you could make money by using your US dollars to buy back Pounds at a lower price, thereby closing your open trade position at a profit.

The Risks of Forex Trading

Every trader wants to make a profit. The FX market offers traders many opportunities to do so. However, even with the best market analysis, no trader, no matter how experienced, can control which way the price will move in the future. Because of this fact, trading will always be an inherently risky activity.

In our previous trade example, instead of the value of the US dollar rising versus the Pound, the price of the Dollar could go down for an undefined period. This means that you could lose money on your trade.

Forex trading involves significant risk of loss and is not suitable for all investors. Market risk is just one kind of risk that faces FX traders. We will explore other types of risks in later articles.

10 thoughts on “What Is Forex About? Introduction to Trading Currencies

  1. This is a very brief and understandable post on what forex trading us all about. I have to say that it is really nice to understand how t really works. The fact that I can make gain from different currencies is good. I know that there are some terms in forex trading that I am not really good with yet. I hope you can explain them to me. Thanks, I will be back for the next post.

    1. Thanks, Henderson.  The terminology used in the Forex market is a good subject for another post.  Great idea!  Feel free to send me any questions you may have.  Be sure to bookmark the site.   I really look forward to seeing you back! Would love to have you join our livestream when we start that.  Should be up and running with daily trading videos within the next two weeks.  Best regards, Mike!

  2. Thank you for this extremely informative post.

    To be completely honest, I thought forex stood for some cryptocurrency or whatnot.  It never occurred to me that it was Foreign Exchange, LOL.

    It’s quite an interesting venture, to say the least.  I’d liken it to options trading.  That said, I’m not sure that Forex trading is for me.  I’m more of a stocks and angel investing type.

    Thanks again.  This was a great read.


    1. Hi Scott!  Thank you for visiting the blog, and many thanks for your comments.  I’m glad you found the post interesting.  indeed, Forex trading is not for everyone, and that’s fine of course.  It sounds like your expertise is in equities and venture capital financing.  Exciting for sure!  Thanks again!

  3. One of the most interesting business to do is Forex, and don’t get it all sweetened up, as much as its interesting and lucrative, it can also be that risky and dangerous card to play, well it all depends on having a prior knowledge of the business. Some articles will say you don’t need to be a tree before you engage, it’s not always a good idea, it’s better ro be on the safe side od knowing what you’re getting into before running into loss. Thanks

    1. You are absolutely right, KingAndrea, that you do need to know what you are getting into before you really start trading your hard-earned capital.  I encourage everyone who may be thinking about venturing into the Forex market to do the homework first.  It is not something that you would want to jump into without full understanding the risks.  My blog is by no means the only good source of true information about trading.  I’m glad you stopped by today.  Please come back and let me know if you have any questions.  All the best!

  4. Trading currencies to make loads of money is a kind of ethical business. Even though I’m not into it, I’ve been opportune to encounter books of successful traders and gurus now impacting those knowledge that helped them into their trainees. It is a business that requires lot of work and dedication. I really wish to try it out, maybe I’ll start gathering details.

    1. Good day, Wildecoll, and thanks for your comments.  I’m glad you stopped by and please let me know if you have any questions.  I’ll be creating video content within the next week or two, so I encourage you to bookmark the site and check back again.  All the best!  

  5. Wow, such good explanation on what forex trading is. I have to say that it is a very good thing that you can teach us what this really means because I feel like I have been missing a whole lot o this. I have seen some people say that frex trading is very similar to gambling. They say it is a prediction ad this makes it gambling. What’s your take on that.

    1. Hi, John! Thank you for visiting my site. Get ready, I think this is going to be a long reply.  You hit on something important.  A great question regarding forex trading and gambling: I like to think about the problem another way because it can be a fine line. If by gambling, people mean placing wild bets on outcomes that are determined randomly, my view is that trading forex is not quite the same as gambling. Trading successfully (profitably) can be learned, in my opinion. A trader is a success or a failure based on several factors, the most important of which is patience, again in my humble judgment. Markets exhibit organic growth characteristics that are not entirely random – there is a certain rhythm to a market that can be detected empirically and reasonable expectations derived from the study of that rhythm. Successful traders don’t predict anything. They make educated assumptions about what a market is doing based on what the market already did, and then, if they see that buyers are in control, they buy. If sellers are in control, they sell, all executed according to a tested plan. There is ‘momentum’ in a market that doesn’t exist in actual games of chance, and one may ‘ride the waves’ in the movements of the price created by momentum. One need only to create a way to ‘see’ the turns in this momentum so that one may take a position in the expected direction of the next movement. This ‘way’ is a trading plan that must be based on objective testing and analysis as much as possible. In addition to riding the waves of momentum, successful traders control how much money is at risk if the market turns on them, and they create a risk/reward asymmetry so that when they win a trade, they always make at least twice what they risked. In other words, if you only risk 1% of your account equity on each trade, and only take profits of 3% (or more) when the market moves in your favor, then over time, you can reasonably expect that you will make money. This is known as having a ‘positive trade expectation.’ When you are gambling in a casino, the house (or the game itself) sets the odds. There are games of skill, like poker or blackjack, wherein a gifted player can skew the odds in their favor.  In trading, if you know what you are doing, you can skew the odds in your favor by enforcing a high risk/reward asymmetry, and trading only in the direction of an established trend.  Doing so does not guarantee that one will always win, or that one will not always lose.  However, if someone opens a trading account, then without consideration or practice, enters trades willy-nilly: that is no better than gambling. Again, great question! Please bookmark the site, and feel free to post any questions you may have here going forward. Thank you!

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