Lesson 2 – What is Forex?
Those of you who are completely new to Forex trading, or trading in general and are trying to find grip, I understand the pain. It can be a very overwhelming world, but it doesn’t have to be.
To put it in as simply as possible, forex, also known as foreign exchange (FX), is the practice of trading one currency for another.
Heres a quick example to illustrate:
Have you ever been on a trip abroad and had to exchange your United States Dollars (USD) for Euro (EUR) or perhaps the Japanese Yen (JPY).
If you’e answered yes, then you technically already have experience as a forex trader.
However, I’m entirely certain you didn’t make any money on that trade.
The Forex market, which you are here to learn about and how to trade it is made up of the worlds biggest decentralized trading network that allows you to trade currencies from the entire world.
And when I say biggest, I mean it.
The Forex market has a daily trading volume of over 5.1 Trillion United States Dollars.
There you go, a big number.
This is quite astounding, especially if you compare it with the stock exchange markets in the world which add up to a daily trading volume of about 260 Billion United States Dollars.
Therefore, forex is by far the biggest and most liquid trading market on the planet, so the opportunity to find an advantage and make profit is definitely abundant.
Furthermore, one of the key reasons its so popular for traders is that is open for a trade 24 hours a day on weekdays.
However, don’t worry, what we teach in this course will not require you to sit in front of your screen all day. Plus, the weekends are yours as the markets are closed so you can lay back and reflect on your past weeks trades.
Who trades Forex?
Government central banks are a very big heavyweight in the pace as they have the responsibility of regulating and maintaining stability of the price movement in their own currency.
A central banks decisions, such as how they choose to set the interest rates, can bring about strong movements in the price of their currency in relation to others. And we as traders know their main aim is to stabiliize inflation of their currency, while also stimulating their own economy via the forex market valuing their currency as they want.
Central banks tend to aim for a stable inflation rate of 2% per year, as this is a happy medium between growing an economy and devaluing a currency too much that people start to protest.
Commercial and Investment Banks are also large players on the foreign exchange markets. They have their own trading floors where they either need a foriegn currency for a transaction, when they try to capitalize in currency price movements and finally to hedge (mitigate risk) their portfolios with an ‘opposite’ currency.
Big Businesses are also involved in the forex markets, depending of course on how much international business they are involved in. When they do business on an international scale, companies will engage in import and/or export for their goods and/or services. And they will need different currencies other than what they use at home.
This means that when they pay for things overseas, they need to buy the foreign currency and sell their own currency first.
And they use the forex markets to do so.
Finally, there are the retail traders. That’s you and me!
There are many strategies (more on a few further in the course) that individual traders and investors use when trading forex, stocks, commodities etc. But the core goal is to gain a profit by accurately predicting future market movements and price swings.
Now bear in mind, there is a significant difference between people who trade forex and people who successfully trade forex. This is fairly obvious, but especially true for retail traders due to lack of training and experience.
With the help of this course and website, we will hopefully turn you into a successful and knowledgeable forex market participant.
Why Trade Forex?
As mentioned, forex is the largest and most liquid market in the world by far, by a long shot. Therefore, due to the large amount of liquidity, traders have nearly limitless opportunities to make trades and find advantages for profit.
Liquidity also gives security. You will always be able to buy or sell your currencies with ease. As opposed to stocks, commodities etc which may not have a buyer or seller for the asset you would like to buy or sell.
Or real estate, where the liquidity is low. Perhaps you’d like to sell your investment property and are stuck for months before you connect with a suitable buyer.
Well, forex has none of these disadvantages.
Liquidity also enables brokers to manipulate market prices and therefore the transaction fees are notoriously low. This is profit straight into your account vs dealing with the high fees of the stock world or the extortionate fees of penny stocks.
Furthermore, the forex market is open 24 hours a day, monday to friday and its the worlds most readily accessible and available market.
This allows traders like you and I to fit their trading schedule around full or part time work, unlike other markets which are open only around the workday, closing at 5pm.
All these factors result in an opportunity where people can make money, safely, from wherever they are in the world, at whatever time they like (during the week). It can help you find your financial freedom, giving you further opportunities that you would not normally have access to.
As long as you have the drive, determination and dedication to study and learning. You can become successful in the forex markets, and with the help of this course. We can get you there.