Learn Forex: Introduction To Forex Trading (Part 1 of 3)

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This article covers the basic information you need to know to get started as a Forex Trader. Think of it as a comprehensive introduction to Forex trading. The ideas that follow focus on educating new traders on market dynamics, key terminology while also providing tips to get started.

WHAT IS FOREX?

In a nutshell, Forex trading is the act of purchasing one foreign currency while selling another simultaneously. By speculating on whether a particular currency is going to appreciate (go up in value) or depreciate (go down in value), forex traders can make money.

Forex seems complex at first, but is very easy to understand when put into everyday situation

  • Example 1: When you go on vacation to another country, you exchange your countries currency for the currency of the country you are visiting, maybe France.

Forex Example - Paris

  • Example 2: When goods are purchased from another country. For example a person in Brazil purchases a BMW from Germany, Brazilian Reals are exchanged for Euros.

Forex Example BMW

THE FOREX MARKET IS THE WORLDS LARGEST FINANCIAL MARKET – OVER 50 X LARGER THAN STOCKS!!

The Forex market is the largest market by dollar volume in the world, handling over $4 trillion in transactions each and every day. This huge daily volume means that there are numerous opportunities to make money; and this is what makes Forex trading so appealing to many different types of individuals and companies – including international banks; large corporations and people like you.

  • Daily Forex volumes exceed $4 trillion in average daily volumes, which is 50 x larger than the volume traded on all of the stock markets combined! Take a look at the comparison chart below.

Stocks VS Forex Daily Trading Volume

ORIGINS OF MODERN FOREX TRADING

While trading currencies has been around as long as currency has been used by humans; and the fundamental multinational currency rules were set at Bretton Woods in 1944; the modern foreign exchange market got its start in the 1970’s with the advent computers based systems; and has exploded with the advent of the internet.

bretton-woods-monetary-conference

Advantages of Forex Trading

Compared to other types of financial trading, Forex has several advantages that makes it ideal for those who are new to investing their own money. We’re going to take a look at some of the main advantages so that you can see why Forex is becoming so popular.

  • Easy to Understand – Once you know the basics, which are easy to comprehend, it’s all about coming up with a solid strategy to consistently profit from your trades on the Forex market.
  • Minimal Investment – Additionally, you’re not going to need a lot of money to get started with Forex trading. The amount will vary depending on the leverage offered by your broker.
  • 24 Hour Market – The fact that the Forex market is available twenty-four hours a day is another big advantage. This gives you more opportunities to make money during the week.
  • Low Transaction Costs – Most of the time, the cost of a Forex transaction is actually built into the  price of the currency you’re going to be buying or selling. It’s typically a low number when compared to trading on other markets.
  • Leverage – This is basically the ability to trade more than what you have in your account with your broker. If you trade at 400:1, you’ll be trading $400 on the market for every $1 that’s in your account. So, if you have $1,000 in your account, you can actually trade up to $400,000.
  • Profit Potential – There are so many different factors that determine the value of a particular currency that there’s always an opportunity to make money whether rates are rising or falling.
  • Largest Market – Going along with the potential for profit theme, the fact that the foreign exchange market is the largest in the world, you can be sure there’s always a chance for you to profit.
  • Limited Risk – You can easily limit the amount of risk you’re taking if you have a good, solid Forex trading strategy in place and stick with it. And with stop orders, the Forex market becomes even safer for investors – even those who haven’t invested in the past.
  • Predictable Price Movements – Prices for currency on the Forex market are predictable if you know what to look for and when to act. The value of currencies tends to shoot up and then correct itself back down. If you know these patterns, which are easy to spot, you can make money.
  • Easy Market Analysis – Because countries are generally more stable than corporations, it’s a lot easier to analyze the market. If you understand supply and demand and keep your eye on the news, it’s easy to know when a particular currency is going to go one way or the other. 
  • Hard to Manipulate – Because of the size of the Forex market and it’s decentralized, it’s difficult for any one person or group to manipulate the market. With no middleman between buyers and sellers, it’s better for everyone involved.

There are many other reasons to get into Forex, but before you take the plunge it’s important to learn the fundamentals of Forex trading in order to take full advantage of the points discussed above. By doing so, you can make profit by buying and selling currencies around the world from the luxury of your home based business.

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