Forex Trading Basics

The Forex Market, also shortened to FX or the Foreign Exchange Market, is where foreign currencies are exchanged or traded. It is often done electronically, or over the counter. There is no one physical place where currencies are traded.

When someone travels abroad, they will need to exchange their home currency to the currency of the country they are visiting. The need for this exchange to happen makes Forex one of the most liquid markets around. The Forex market trades billions in a single day. Unlike other markets, Forex runs 24 hours a day, five days a week. Once it closes for business in one country, it opens up in another.

Who can trade?

Before the emergence of electronics, specifically computers and the internet, Forex was reserved for very wealthy people, large corporations, hedge funds and central banks. Now, with the development of online brokerage companies and Forex trading platforms, an investor can buy or sell currencies in the comfort of their own homes. All you need is an internet connection and you’re good to go.

How does it work?

The Forex exchange, unlike other markets, is not volatile. In fact, most of the currencies change by only 1% in a day. Traders rely on high leverage and little risk to make substantial profits for investors. If you invest in the Forex market, unlike in the stock exchange, even the slightest change could mean a loss of your entire investment.

There are three ways to trade using Forex. First, you have the spot market which is basically an immediate settlement. This means is that once you’ve agreed on the terms and conditions of your trade, there is nothing left to do, your trade has been completed. Next you have the Futures and Forwards methods of trading.

This is exactly how it sounds, when you discuss the terms of your trade, you are agreeing upon a date in the future in which your trade would go ‘live’. The difference between the Futures and Forwards methods are simply where you purchase your trade. A Forwards trade can be purchased over the counter, while a Futures trade needs to be authorized by the National Futures Association. Trade wisely!

How to trade successfully

Personal Knowledge
The approach you take to trading should align with your personal goals. For example, if you have an interest in the beauty industry, it would probably be a smarter idea to invest in that rather than the mining industry.

Time frame
If you are only trading part time, short term charts are a good option, however you will want some experience in the game if you are into looking this method. If you plan on trading full time, there are long term charts available to you which require less risk, and definitely a higher success rate.

Discipline and patience
For one to be successful in the stock market, they must be patient and disciplined. Patience allows you to wait for an entry point while discipline allows you to cut your losses while it’s still early enough.

There is no right or wrong way of trading what matters is always to make money and not losses.