How Forex Market works – Free Guide
Welcome to the Investingoal course dedicated to Forex Market.
In the previous Investing For Dummies course we have studied all the basics you need to approach the investment practice. Before to find out how this is possible with Social Trading, you must first discover on what market Social Trading is developed.
The Social Trading market is primarly Forex.
Maybe you have already heard about it, maybe you’re already an expert, maybe you’re already trading in this market. Or maybe you’ve never heard of it.
As you will discover, you will not be required to become a professional in this industry to be able to invest in it. However, a basic level of knowledge on how Forex is structured, and what are its protagonists and its rules, can’t do anything but improve your investment with Social Trading.
Therefore, do not run straight to the next course, but read this one very carefully, so to strengthen your foundations right from the start.
- The Currencies
- Currency exchange in practice
- The Pip
- The Spread
- The Broker
- The Financial Leverage
- The Margin
- Trading modalities
- Order types
- Types of traders
- Buy long Sell short
- Summary and Conclusions
The term FOREX is an abbreviation for Foreign Exchange Market.
With this term, or its abbreviation FX, is commonly identified the market in which currencies are traded through an exchange rate.
The Forex Market is an interbank money market, born in 1971 following the conclusion of the Bretton Woods system. Those agreements sanctioned the dollar’s convertibility into gold at a fixed price, and all other currencies to the dollar. Once those agreements were ended, it gave way to the free exchange of currency, for arriving later to the free movement of exchange rates.
From that date until today, thanks to the expansion of Internet and the information technology, the volume of transactions and the accessibility to this market have been always growing.
Forex Market: the world’s largest one
The Forex is universally recognized as the largest market in the world. Every day there are exchange of currencies for a volume of nearly 5,000 billion dollars (five thousand billion, or five trillion). To make a comparison and understand its magnitude, consider that the NYSE (New York Stocks Exchange), the largest in the world, where stocks and derivate are traded, every day on average there’s only a transaction volume of 22.4 billions of dollars.
We must however specify 5 trillion is the volume generated by Forex in its entirety, but as we will see, this market is divided into different sub-markets, and what we are interested in is the SPOT market only. Here we have so many players dealing with each other, banks, forex brokers, money transfer services, institutional and corporate traders, and also retail traders (private traders and speculators) that we’re going to learn more about and take advantage of in the next course.
The SPOT Forex market is still huge compared to all the others, recording an average daily transaction volume amounted to $ 1,500 billion. The retail traders (private traders or small speculators) are a small part of this market and to participate they need intermediaries, who in the world of finance are represented by the Brokers.
How forex market works
Let’s then start to say in simple terms how Forex works.
The Forex market is called OTC (Over The Counter). OTC simply means that this market doesn’t have an official negotiation place, such as the NYSE in New York, the LSE in London, or the TSE a Tokyo, etc. Forex is spread over an interbank circuit, without having a specific location, and participants in this circuit are free to trade with each other without having a registered office.
This inherent flexibility of Forex market, and the exponential increase in the number of participants, have ensured that the entry barriers in this market were completely demolished.
Today the Forex market is truly accessible to everyone. If once you could have problem with initial capital, even that problem no longer exists. Now you can open an account paying just a few tens of dollars of initial capital.
However, the fact that it is easy to access does not mean that it is also easy to invest and make money out of it. This is the lever that many operators have used to obtain many customers, misleading them into believing that Forex trading was a no-brainer.
I’ll tell you now and clearly: it’s not easy.
Forex trading is very difficult, complicated, and requires years of training and experience.
Anyone who says otherwise does not know what he’s talking about.
“But then, if it’s so difficult and challenging, why is it also so famous?”
The answer is simple: because with Forex you can make a lot of money, even having just a few at the beginning. There is a good news for you. You won’t need to go through the long and difficult journey to become a forex trader, but you can exploit to your advantage those who already have been traders for some time, as we shall see in the next course “What is Social Trading”.
In this course we won’t discuss technical or operational strategies for trading in the Forex, but we will see step by step all the main characteristics of this market, so that you’ll have the necessary knowledge to deal with the Social Trading course with the right foundation (here you can deepen the subject anyway). So, don’t waste any more time, and dive in the first lesson of this 12 chapter course.
Forex is a market, then it’s, by definition, a place where goods are exchanged. Let’s start by understanding first which goods are traded in the largest and most used market on earth.