Forex Trading Basics

History of Forex – What is Forex?

Forex trading is the buying and selling of international currencies. Traditionally, participation in the FOREX market was confined to major banking and trading institutions.

In recent years, technological advancements have opened up this once exclusive arena to smaller companies and even individuals by allowing them to conveniently trade currencies online.

The world’s currency rates are not fixed. They follow a floating exchange rate and are always traded in pairs such as: Euro/US Dollar, US Dollar/Yen, etc. Most international transactions are exchanges of the world’s major currencies, aka “The Majors.”

 

The Major Currency Pairs – Where is the Money?

When it comes to Forex trading, there are a number of major currency pairs:

  • Euro vs. US Dollar – EUR/USD
  • US Dollar vs. Japanese Yen – USD/JPY
  • British Pound vs. US Dollar – GBP/USD
  • US Dollar vs. Swiss Franc – USD/CHF

 

These currency pairs are considered “The Majors” in comparison to the other currency pairs because of their massive trading volume.

They may also be listed as follows (without the slash):

  • EURUSD
  • USDJPY
  • GBPUSD
  • USDCHF

Functions of the Forex Market

It is important to remember that there are no dividends paid on currencies. If you are a trader in the FOREX market, you look to see whether one currency’s value will appreciate or depreciate against another currency. When this takes place, buying and selling opportunities are created.

Ideally, you will be able to exchange the first currency for the other at a later time and collect a profit from the trade. The majority of Forex transactions are typically conducted by professionals at major banks and brokerage firms. Forex trading has long been a key element of the international market.

At all hours of the day, currencies are being traded by brokers and individuals around the world. In fact, the Forex market operates virtually twenty-four hours a day, six days a week with traders at international banking institutions working a number of separate shifts.

The Forex market differs from the normal stock market because there is no central exchange (NYSE) and there is a tremendous amount more liquidity due to the fact that the Forex market trades over 4 trillion dollars per day, allowing traders to enter and exit certain positions very easily.

As you can see, the Forex market is a dynamic and continuous system that basically never sleeps. To be sure, even on September 11, 2001 it was still possible to obtain currency quotes.

Also known as the foreign exchange market, or FX, it is the oldest and most active financial market in the world. In comparison, the futures market is approximately one percent the size of the Forex market.

Trades are brokered between major banking groups and circulate around the globe, from Australia, to Asia, to Europe, USA and back to Australia. For a longtime, financial prerequisites and hefty minimum transaction amounts put the Forex market out of reach of individual traders. Consequently, at one time major banks and financial institutions were the only parties that could benefit from the Forex market’s liquidity and smoothly flowing exchange rates.

Today is a totally different story! Forex market makers can divide large units within the market, allowing smaller corporations and even individuals the ability to trade these smaller units. Even though it is the oldest financial market in the world, the Forex market has evolved a great deal in a short period of time.

High-speed internet connections and sophisticated online Forex trading platforms have definitely made it easier for individual traders to get involved in Forex trading and create there own 100k/year plus businesses.

That concludes this Forex Trading Basics Lesson. The topics that were covered are the foundation towards building your own Online Forex Trading Business. The key to success is continuous education and persistence. If you didn’t fully understand any of the concepts explained, don’t be discouraged. Simply go back and review the lesson(s) until you feel comfortable enough to proceed to further lessons.

If you are ready to take you basic Forex knowledge and start applying that to a precise rules based strategy then we invite you into our Free Video Training Series where you will learn all about the FxST Trading System and strategies.