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What is forex? free forex course 2021

Beginning forex traders often need to explain what forex is at first and how it works and is traded in the global financial markets.

This article will give you a detailed explanation of Forex:

  • What is forex?
  • Forex basics
  • How does forex work?
  • Who trades currency pairs?
  • What is currency trading?
  • How do you operate in the forex market?
  • Why Trade forex?

What is forex? It is the largest financial trading market in the world
What is forex? free forex course 2021

What is forex?

Forex (also known as forex market) is where currency pairs such as the euro for the US Dollar or the British pound are exchanged for the US Dollar and reverse their price movements in the market to make money. The forex market is an over-the-counter (OTC) market; Investors and traders buy and sell currency pairs through it.

Currencies, unlike most other marketable financial assets, are both economic instruments and economic indicators. In other words, if countries were corporations, currencies would be their shares.

The forex market is the most liquid (as well as the most accessible). Therefore, it is the most difficult market to manipulate.

Read more: Forex trading for beginners.

What is forex? It is the largest financial trading market in the world

Forex is the largest financial market in the world, with more than 6 trillion US dollars traded every day. In other words, in one day, more money will be traded in the currency markets than the value of Japan's GDP. Of these transactions, $ 254 billion are traded through CFDs and other financial derivative instruments.

As the largest and most active financial trading market in the world, it is also the most liquid market in the world, which means that it is easy to participate and enter and exit operations. And for the more liquid pairs, you can trade currencies at a very low cost (even as low as 1 pip!). This also means that the forex market is very volatile, which creates many opportunities for traders to profit from positive and negative movements in forex trading.

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Explanation of Forex Basics

Knowing the vocabulary used by investors and forex brokers will not make you a successful trader, but you do need to know it to become a trader early on.

These are some of the most important forex fundamentals:

  • Currency pairs
  • Spreads and points
  • Margin
  • To take advantage of
  • Contract / lot size
  • Trading platforms
  • Contracts for difference
  • Swap

Any investor who wants to start trading the forex market must understand how this market works and must also know the basic terms used in that particular market. Getting started with a demo trading account is a good way to learn and understand what forex is.

Forex Explained - What Are Forex Quotes?

To understand what forex is, you need to understand how currency pairs work before proceeding further. For example, let's take the EUR / USD pair. The euro is called the base currency (or transaction currency) and the US dollar is the counterpart currency. It gives us the balance of power between the base currency and the currency corresponding to the exchange rate.

When looking at EUR / USD or other currency pairs on the red box trading platform, we can see two prices: Sell and Buy. It is usually displayed as: EUR USD 1.1034 / 1.1035. The sale price indicates that we can buy € 1 at $ 1.1035.

Forex Explained - What Are Forex Quotes?
Forex Explained - What Are Forex Quotes?

In parallel, the offer price tells us that we can sell 1 euro for $ 1.1034. It's easy to see that banks tend to sell higher coins than they get. And they can do it because they have more influence than the middlemen.

You cannot just buy or sell EUR / USD, as is the case with company shares, for example. The EURUSD currency pair does not really exist. To better illustrate this concept, you cannot buy any commodity with EUR / USD; It is not a currency, but a currency pair whose prices are linked to determine the relative value of your home. Therefore, traders trade the strength of currencies with each other, buying and selling different currency pairs by following their price movements.

In the foreign exchange market, profits are made by increasing or decreasing the value of one currency relative to another. Let's say you buy the euro and sell the US dollar (through the EURUSD pair). To profit from this currency trading, you will have to wait for the EUR to rise against the USD.

What are the most popular currency pairs?

For this Forex Explainer article to be completely complete, we need to review the most popular traded instruments or currencies that traders have access to.

The most frequently traded currencies are the Euro (EUR), the US dollar (USD), the Japanese yen (JPY), the British pound (GBP) and the Swiss franc (CHF). Therefore, the most popular currency pairs (also known as majors) are the most used. The most frequently traded currencies are: EUR / USD, GBP / USD, USD / JPY and USD / CHF.

There are three other currencies that are very prevalent in the foreign exchange market: the New Zealand dollar (NZD), the Australian dollar (AUD) and the Canadian dollar (CAD). When linked to other currencies in a pair, they are labeled "crosses": NZDCAD, USDCAD, or AUDUSD.

All currency pairs including the Russian ruble, Czech koruna, Polish zloty, Hungarian forint, Swedish krona, or Norwegian krone are considered "exotic" pairs. They represent only 10% of the foreign exchange market.

Forex Explained - What are Forex Contracts for Difference?

If you've ever wondered what the forex market is and have done some research on forex trading education for beginners, you may have seen the term "forex CFD" at some point. There are two ways to trade forex: using contracts for difference (CFD) or spot forex (also known as margin). Spot currency involves the buying and selling of real currencies. For example, you can buy a certain amount of British pounds against the euro and then once the value of the pound increases, you can exchange the euro for the pound and receive more money than you originally spent on the purchase.

The term CFD stands for Contract For Difference, a contract used to represent the movement in the prices of financial instruments. In currency terms, this means that instead of buying and selling large amounts of currency, you can benefit from price movements without owning the asset itself. Along with Forex, CFD are also available on stocks, indices, bonds, commodities, and cryptocurrencies. In any case, CFD allow you to trade the price movements of these instruments without having to buy them.

Who operates in the forex market?

The most important traders and investors in the currency market are:

  • Central Banks
  • Governments
  • Private Banks
  • Hedge fund investors
  • ETF Investors
  • Mediators
  • Beginners, professionals and investors

Of all the forex market operators, central banks have the greatest influence on currency prices. In fact, their policies (quantitative easing) and decisions (interest rates) are regulated by and are responsible for the "Supply" of the currency.

Novice traders and investors have only limited impact on the forex market, due to the amount invested compared to the total trillion dollar amounts in existence.

To understand the forex market, one must know that the supply and demand for forex is constantly evolving. Traders can track price developments through trading platforms using candles or charts.

What is the forex market?

As far as the economy is concerned, the price of supply and demand drive market prices. This principle also applies to the foreign exchange market.

When a currency is bought, the demand increases, which pushes the price up. Also, each time a coin is sold, the supply increases, causing the price to fall. The effect of each purchase and sale in the currency market is directly proportional to the size of the transaction for each operation.

Most of the economic news and events that occur around the world have an impact on the markets. Therefore, understanding what is driving the price is the key to becoming a good forex trader.

What are the factors that affect forex?

The forex market, which reflects the prices of currency pairs, is affected by several factors:

  • Interest rates
  • Inflation rates
  • Political and economic news
  • Natural disasters
  • Gross domestic product (GDP)
  • Supply and demand of the underlying instrument

You can always check the latest news from the economic calendar showing the most important news of the day and week and their impact on the related financial instrument.

Forex Explained: Importance of the Broker in Online Trading

The ever-changing ocean is a good understatement for the forex market. Many fish inhabit this ocean. Some of them are big and some are small in terms of their impact in this environment (Forex market).

Global equity market players, such as banks, multinational corporations, or hedge funds, are the major players in the market. Midsize fish, such as private investors and midsize companies, can use the forex market to protect themselves from random fluctuations in their base currency. And finally, the small fish are online brokers, small banks, retailers, and investors.

Most of the market operators mentioned above have access to the interbank foreign exchange market. This means that they can exchange currencies with each other without intermediaries.

The smallest players, the plankton of the financial ocean, on the move, trying to survive long enough to grow, are individual retailers.

The purchasing power of novice retailers is negligible compared to the big shot. So for that you need forex brokers or banks to get the leverage and market access (via the trading platform). Novice retail traders cannot access the forex market without an online forex broker. For more information on how to choose the best online broker, you can read the following article:

What is Currency Trading?

The forex trading process is very simple to understand. It is an exchange of financial instruments between two market operators at specific prices at a given time in the desired amount. Currency trading is a way of investing by buying or selling currency pairs. Anyone can access it through a computer and an Internet connection.

The objective of these trading operations is usually to make a profit through price movements, but this operation must also have well thought out risk management.

How to access the live forex chart

Before you can learn to read and analyze a Forex trading chart, you must first be able to access it. Viewing live forex charts is essential for making trading decisions because it shows all the buying and selling activities currently taking place in the market. MetaTrader is one of the best trading platforms used by traders in the financial market.

The best trading platforms used by stock market operators:

Most currency traders start with MetaTrader 4, which you can download for free to start viewing free currency charts. One of the main advantages of these platforms is the fact that you can trade directly from the chart you are viewing. Therefore, once you are familiar with how to read a Forex trading chart and can recognize potential signals for trades, you can easily access a live order ticket to buy or sell.

Forex Analysis

Forex analysis is not the only key to success when it comes to trading; It is, in a way, the ability to do a good analysis is essential to be profitable in the forex market.

There are Two main methods of market analysis: Fundamental analysis and Technical analysis.

The first can be absorbed in the financial audit of countries, countries or the whole world. It is the oldest form of analysis and takes into account many elements such as the current economic situation, the expected situation and the political climate.

Gross domestic product, unemployment rates, inflation, the trade balance, retail sales, elections, natural disasters, and wars are factors that can be considered when conducting a basic analysis. It requires a good understanding and knowledge of the global economy, as these are factors that markets may not have taken into account yet. Most investors use fundamental analysis to make long-term decisions.

The disadvantage of this analysis method is the resulting aberration due to the large multiplicity of important parameters.

On the other hand, technical analysis is the most recent analysis method. It is based on two factors: time and price. Both are measurable. This is the reason why many forex traders prefer technical analysis to fundamental analysis.

When you use support and resistance, identify key areas or look at indicators or candles, you are not getting information about the cause of the change in supply and demand.

To make it easier, fundamental analysis is based on economic factors and their predictions, while technical analysis is based on what happened in the past in market cycles with the formation of statistics for them.