Forex trading is when banks, businesses, and individual traders like you and I come to exchange one currency for another and make profit out of it. Forex is often referred to as Foreign Currency Exchange, or shortly FX, and it is the biggest and most exciting market in the world with average daily turnover of almost $4 trillion.
Forex market opens its virtual doors 24 hours a day, 5 days a week based on the major world trading centers in London, New York, Hong Kong, Paris, Sydney, Frankfurt, Tokyo, Zurich and Singapore.
History of Forex
It all started in 1876 when the Gold Exchange Standard was activated. In simple lingo, that’s when all the paper currency needed to have a solid gold backup. The idea behind it was to stabilize the currencies by attaching them to the gold prices. The theory might sound good, but the reality often proves it wrong.
Instead of stabilizing the currency, the gold standard was decreased around the time of World War 2. There was simply not enough gold to deal with all the printed currency used to cover the military expenses.
Then the new idea of having fixed exchange rates came to the rescue, which resulted in US Dollar turning into the primary reserve currency – the only currency attached to gold. And this is called the “Bretton Woods System”. By the end of 1971, U.S. refused to exchange gold for US dollars held in foreign reserves. This marks the fall of the Bretton Woods System and the beginning of global legalization of floating foreign exchange rates.
1976 marks the beginning of forex as we know it, however it took another 20 years until foreign currency exchange market because available to public over the internet.
What is Forex Trading?
Forex trading is when traders speculate on the price of one currency against the other. Based on your understanding of factors that move the market and your daily predictions, it is possible to make profit from the price fluctuations.
Let’s go over a very simple example. You are on the way to the holiday to Maxico. In the airport you exchange your American USD for Pesos. By exchanging one currency for another, you have experienced exchange rates in full speed.
Let’s say that the exchange rate is 18.88. This means that for 1 US Dollar you can purchase 18.88 Pesos. Now, imagine that you have exchanged 100 USD. How much Pesos would that be?
100 USD x 18.88 = 1,888 Pesos
Congratulations, you are now very rich (not really, but go on with me on this).
Now let’s pretend that there was a political uproar of some sort which forced the exchange rate to flung to 10.42. Having 1,888 Pesos, you can rush to the exchange shop and change it back to USD, resulting in:
1,888 / 10.42 = 181.19 US Dollars
In just couple of hours, you have successfully earned $81 dollars doing absolutely nothing.
Of course, things can go the other way around and an earthquake can lead to different currency rate, for example 21. On the way back home, when you want to exchange your Pesos for USD, the value of 1,888 yields just 89.90 US Dollars. You have lost $10, once again, not lifting a finger.
In later chapters, we will discuss ways to analyze the market and predict the price movements. This is a true art of forex trading and you will be able to know how it works.
Why Forex market is so attractive?
I am a professional forex trading and I have a life style many would envy. It is not easy to get where I am, but it is possible and many professional traders are here to prove it.
When you decide to make forex into your career, you must:
Learn to take loss without emotional drama.
Believe in your strategy even if sometimes it seems to fail you.
Dedicate your time and energy in learning about market analysis, expert advisors, charting options, money management, economic factors and financial news release.
Stay organized and keep track of your decisions and emotions.
Do not treat loss as a mistake. Instead consider it necessary experience and a step forward towards profits.
Realize that you are not going to become rich in one day.
Keep learning even if you know the basics.
Control your emotions and never trade out of anger or desperation.
Why should you Trade Forex Market?
Forex is the biggest market out there and it doesn’t make any sense not to take part of this profit machine.
You have access to forex market almost every day, for 24 hours. There is no limit on hours, there is no opening and closing bell. You choose the trading hours. You are your own boss.
There is no need to have thousands of dollars to open a trading account. Many forex brokers offer mini accounts for just $1. There are some brokers with cent accounts, which are useful for practicing. The advisable amount beginner should start with is about $250.
You have a lot of interesting options when it comes to currency pairs. You can focus on just one pair, or select several. Unlike stocks where you must analyze thousands of options, in forex you can stick to one currency pair and focus on it..
Online forex trading doesn’t require much. You need a decent computer, tablet or smart phone with fast internet. It doesn’t get any simpler than this.
Profits come from volatility of the market conditions. There are tons of profitable opportunities during the week. Everyone has equal opportunity to profit from the movements of the market. No exceptions.
With all that positive feedback about forex, beginners must realize that trading involves potential risks. You have to understand that ignoring the risks involved will get you into more trouble than you can imagine. Accept the fact that you can lose the money you invest and you are on the right track in getting started with your forex career.