Forex is the global currency market, the largest in terms of trading volume and income. Trillions of dollars circulate here every day. Based on the definition, this is foreign currency trading. All these currency transactions involve the central and commercial banks all over the world, transnational corporations, large investment companies, funds, private investors, and traders.
The essence of forex practice is speculation on the price difference of currency pairs. Here it is possible to earn both on the growth of the currency and on its fall. Income can significantly exceed bank deposits and investments in traditional stock exchange instruments.
The forex market originated in the 1970s. Exchange rates began to be set by the market, and not by the state, as it was before. The main practical significance of the new system is the transition from fixed exchange rates, which were based on the gold content of currencies, to floating ones.
In this regard, quotes change every second. This situation has contributed to the normal functioning of the world economy. A full-fledged exchange of capital between states became possible.
How the market works
It is important to understand that Forex is not an exchange, but an over-the-counter market, it does not have a centralized platform for trading. It operates 24 hours a day, 5 days a week, and trading is closed on weekends and holidays. Almost non-stop trading becomes possible due to the division into four trading sessions:
- Asian with financial centers in Tokyo, Hong Kong and Singapore;
- European with centers in Frankfurt, Zurich, Paris, London;
- American with centers in New York and Chicago;
- Pacific with centers in Sydney and Wellington.
When one session ends, another begins, so traders have 24/7 access to trading. Most currencies are more actively traded in the sessions that own their country. For example, trading on the EUR/USD pair is most active during the European and American sessions.
Trading on the Forex market is based on the principles of margin trading, that is, trading using the so-called leverage. The trader’s own money, which he invested in trading, is taken by the broker as a pledge for the period of an open transaction.
Before moving on to real Forex trading, a trader can practice on a demo account. You will also need a demo account in the future to test trading strategies, robots and advisors.
For work, modern trading terminals are used, such as MetaTrader 5, where various types of charts and orders are available. Since the software has versions for desktops, mobile devices, and browsers, the trader is not tied not only to the time of day but also to the workplace. The platform is provided free of charge.
The task of any trader is to sell the asset as expensive as possible and buy as cheap as possible. Traders apply technical and fundamental analysis methods and use trading indicators and robots to increase efficiency.
Exchange rates are influenced by political, economic, and psychological factors. Based on the flow of financial and economic news, on certain indicators, a trader predicts which currencies will rise in price and which ones will fall. If the forecast is justified, he makes a profit.