Forex Trading Online Forex Trading:
All you Need to Know to Start Trading FX
So, you’re looking to learn the basics, perhaps even get a
detailed understanding of Forex Trading. Well, you’ve come to
the right place!
In this guide we’ll be addressing all of the important things that you need to know before you start forex trading in order to understand how to enter the markets safely, with an effective strategy in place.
Firstly, we’re going to explain what Forex Trading actually is and how it works. We’ll then be examining basic terminology so that you can become accustomed to the words and phrases used while trading foreign exchange. Following the basic terminology, we’re also going to examine the calculations that you’ll be using in your day-to-day life as a forex trader.
Our guide aims to fully equip you with the tools to further your knowledge and understand the details of fx trading before you enter the global markets. If you’ve had some experience with trading Forex before then feel free to skip ahead to the sections that you’d be interested in. Simply click on the menu titles below to be redirected to the relevant information for you.
What Forex Trading is and How it Works
Foreign exchange, or Forex for short, is a market where you’re
able to exchange one currency for another. With a daily trade
volume of $6.6 trillion dollars, the forex market itself is
huge! It eclipses the likes of the New York Stock Exchange
(NYSE) which, by comparison, has a trading volume of only $22.4
billion per day.
The Forex Market’s sheer size attracts a wide range of different participants, including Central Banks, Investment Managers, Hedge Funds, Corporations, Brokers and Retail Traders – with 90% of those market participants being currency speculators!
So, what exactly happens in the forex market, to make it so attractive to investors across the globe? Well, imagine that you’d like to exchange one currency for another. You’re effectively selling one currency while buying another, or 'exchanging' it.
Now, the exchange rate between those two currencies is what’s important when trading forex. The exchange rate is constantly fluctuating, and it’s these fluctuations that allow market speculators to earn from trading or potentially lose their investment. These fluctuations are driven by the supply and demand of each currency!
It’s also important to note at this point that, while you are trading, millions of other traders are also entering the forex market. So, when you 'sell' a currency, there is a buyer for that currency somewhere else. The more people that are trading, the more money there is in the market, which is what we call the 'liquidity'. As we’ve mentioned, the forex market is huge with millions of traders across the globe Because of this the liquidity in the forex market is really high!
What is Forex?
There are around 13.9 million traders across the globe that are
simultaneously buying and selling currencies. As we mentioned
before, this means that the liquidity of the forex market is
These high levels of liquidity mean that traders can enter and exit a trade, as there will normally be a buyer for the currency that you’re selling, or a seller for the currency that you’re buying!
High liquidity levels have other implications too. If the levels of liquidity are high, then there are a lot of market participants, so trading costs, like the spreads could potentially be lower. It also means that the market is way less susceptible to market manipulation! If someone opens a huge trade in a market with low liquidity, it’ll have a huge impact on price. This doesn’t happen in forex because there is such a large volume being traded!
Now, the forex market, as it encompasses all of the currencies in the world, is actually open 24 hours a day, from Monday until Friday. The trading that is done on these currencies is what we call over the counter or OTC for short. This means that there isn’t a physical exchange like there is for stocks. It’s actually a global network where there’s a network of financial institutions and banks that oversee the market rather than a central exchange like the New York Stock Exchange.
As an individual, you’re likely to be categorized as a 'retail trader'. However, the largest portion of forex trades are actually conducted by ‘institutional traders’ like banks, funds and large corporations. They’re not necessarily going to actually buy or sell the currencies but are speculating about price movement or hedging against upcoming changes in the exchange rate.