What is Forex and how does it work?… It’s a question that many people want to know the answer to, rightly so! There is a huge potential in Forex currency trading for making lots of money very quickly.
When it comes to making money trading Forex, I am no expert by any means. I just know a little about Forex and how it works, mostly from research and readings I have done in the past couple of years.
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Since Forex is one of the least understood ways of investing and growing your money, and since I know there are a lot of beginners who want to learn Forex without having to pay somebody to teach them, or pay thousands of dollars to take a “Forex Course”, I have decided to write a series of Forex for beginners posts to (hopefully) expand your knowledge of Forex trading and how it can be potentially used to grow your money.
What is Forex Trading?
For a beginner, Forex market may seem like an impossible market to understand. But the truth is, Forex is actually quite easy to understand. Forex is mad up of two words – Foreign and Exchange. It refers to exchanging foreign currencies for a profit.
How can you trade currencies, you ask?… Well, because of the economical and political happenings around the world, rates of currencies change all the time. It gives you an opportunity to make a profit by trading currencies based on their rates. That’s how Forex traders make money. Of course, this means that it is risky, and there is possibility that you may lose your money.
An International Trading Market
In many ways, Forex trading is a lot like trading Stocks, but there are some game changing differences as well. One difference from stock exchange trading is that unlike stock traders, Forex traders are not limited to dealing in their own country. A Forex trader can trade any two currencies, at any time, any where. Which makes Forex market an international market.
Forex Market Hours
That brings us to another major difference between stock exchange trading and foreign currency trading, Forex market hours. As you know, there are different time zones in different parts of the world, and since Forex market is an international market, to be possible for anyone from anywhere to trade at any time, Forex market has to be open 24 hours a day, with the exception of weekend of course.
Forex Currencies
Just like stock exchange market where each company is represented with certain letters, in Forex, currencies are represented that way also. But, unlike stock exchange market that a company can be represented by any number of letters, in Forex market currencies are represented by only 3 letters. A few examples are USD for the US dollar, GBP for the British pound, EUR for the Euro, JPY for the Japanese Yen, CHF for the Swiss franc, CAD for the Canadian dollar, AUD for the Australian dollar, and so on.
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Currency Exchange Rates
Another major thing about Forex is that the exchange rate between two currencies are expressed like this: USD/CHF 1.14. Which means to buy one US dollar you will have to spend 1.14 Swiss francs.
Forex Broker
To start trading, you will need to find a trusted Forex broker or an investment management company. Don’t take this step lightly. Scammers have been ripping people off for years. So, it would be wise to look around and make sure you find someone who you can trust. Use forums and online groups to find out where and how to choose a Forex broker.
Automated Forex Trading Software (Bot)
Since Forex is an international market and there are trades going on at any moment, and since obviously you can’t watch it 24 hours a day, it is a good idea to use an automated Forex trading software (a bot). It can trade 24 hours a day according to rules that you set for it. And they usually come with a demo option for you to test the system and get to know how it works before you let it trade with real money.
That’s it for the first part of my 7 part series of Forex trading for beginners. I hope this article helped you to get an over all understanding of what Forex is all about. In the next article, I will talk a little more about timing and how it affects trades. Mean while, please feel free to leave a comment if you have any question about what Forex is and how it works.