Forex (abbreviation for Foreign Exchange) - is the currency exchange. Forex market is primarily considered to be the international currency market - the largest and most active financial market in the world. Its daily turnover exceeds 5 trillion dollars. This is more than the turnover of all national stock markets combined.
Participants of the Forex market are the largest banks and central banks of different countries, investment and pension funds, large companies and private investors with huge personal capital. Transactions in this market start from 1 million dollars.But Forex is also called a market where real currency is not bought and sold, but only betting on the growth or fall of currency rates. This market was organized by specialized companies - forex-dealers.
You cannot buy currency through a forex dealer. If you need dollars, euros, pesos or yuan, you can exchange them at a bank or on a currency exchange through a broker.
Forex is an accessible market for beginner traders with low capital
You don't need to have millions or thousands of dollars in your account to start making money in the Forex market. Thanks to leverage, even if you have $100 or $500, you will be able to take part in trading on a par with large market participants. Special micro and mini accounts allow you to trade even with a deposit of 1$.
You don't need any special equipment either. It is enough to have access to the Internet and a trading terminal - a special program on your computer.
Unlike the stock or futures market, Forex does not have a single trading venue, such as the trading floor of a stock exchange. Banks and other market participants are connected by electronic telecommunication networks (ECN). Trading is conducted 24 hours a day, Monday through Friday. The decentralized structure allows to carry out operations with buying and selling of currency without unnecessary commissions. It also gives market participants access to trading at any time from anywhere in the world.
How are transactions concluded in the Forex market?
Before a transaction, you select two different currencies - a currency pair. One of them is the base currency and the other is the quoted currency. Your task is to try to predict how the rate of the quoted currency will change relative to the base currency. If you are sure that the rate of the quoted currency will grow, you can open a deal to "buy" it. If you think it will fall, you can "sell" it.
The dollar is most often chosen as the base currency, while any other currency can be chosen as the quoted currency.
Let's consider an example:
You have selected a currency pair - euro and dollar. The dollar is the base currency, the euro is the quoted currency. For example, you expect the euro to rise against the dollar.
The euro is now priced at $1,213. You open a transaction to "buy" euros in the amount of $100. In reality, euros do not come to your bank account, but are reflected in the internal register of forex broker's transactions and on your balance in the program.
Suppose a day later the price of the euro does rise to $1,223. You think it won't rise any further and close the trade. Thus, you make a profit: $(1,223 - 1,213) × 100 = $1. This money will be credited by the forex broker to your real bank account - your deposit will be replenished. If the euro drops to $1.113, your loss will be: $(1,213 - 1,113) × 100 = $10. And this money will be deducted from your bank account by the forex broker.
Why you should choose Forex?
High liquidity and best prices
In Forex there are always sellers and buyers, the market is constantly in motion. Working on ECN model, the broker will provide you with the best prices from the largest banks, ECN platforms and other liquidity providers. It is profitable for the broker to provide you with the best prices and minimum spread.
Access to trading 24/5 from anywhere in the world
The market trades around the clock from Monday to Friday. The broker provides you with support 24 hours a day. You choose your own time for trading - European, American and Asian trading sessions alternate each other. And the greatest liquidity is present on the market in those hours when trading sessions in different time zones coincide.
You can trade even with $100
Unlike other financial markets, Forex is characterized by low deposits and small position sizes. Thanks to margin trading and leverage, you will be able to operate with amounts several tens of times the size of your deposit on your account.
The broker has an interest in your success
With the ECN model you trade directly with other market participants. If there is an opposite order at the right price and sufficient volume, the deal is executed. And the broker receives a commission for "matching" your orders. With this approach, your broker does NOT trade against you and does not make money on your losses, but is directly interested in you trading successfully and with large volumes.
There is always an opportunity to make money
The stock market can crash and stocks can depreciate in value. But in forex, if one currency falls in value, the other inevitably rises. And you can make money on it.
It's easy to follow analytics
There are only 4 major currency pairs in the forex market. You can choose one or more pairs to specialize in. Monitoring the news and analyzing 4 pairs is much easier than watching thousands of stocks on the stock exchange.
Training for beginners
The broker provides educational demo accounts, courses and seminars, videos, news, charts and analysis to help you improve your trading skills.
Automatic trading
It's not necessary to sit in front of the monitor and watch the market around the clock. Automatic indicators and signals will inform you in time about important events or trend changes. You can also use Expert Advisors developed on the basis of your own or someone else's proven strategy. The Expert Advisor will trade automatically, without your participation.
In order to successfully start earning on the Forex market, first of all, study the theory
- First, you need to understand how the international currency market works. Familiarize yourself with the methods of fundamental and technical analysis - they help to forecast the movement of any variables with the help of mathematical models.
- Secondly, understand the specifics of derivative financial instruments (PFIs, specialists call them derivatives). After all, transactions with forex brokers are PFI contracts for currency or currency pairs.
- Third, study the literature about the stock market and investing, many books have been written about trading.
After that, start practicing, because any learning is impossible without getting real skills.