Forex

Online Forex Trading:

Everything You Need to Know to Start Trading Forex

So you want to learn the basics, maybe even get a detailed understanding of forex trading. Well, you’ve come to the right place!
In this guide, we’ll cover all the important things you need to know before you start trading forex so you can understand how to safely enter the markets with an effective strategy.
First, we’re going to explain what forex trading is and how it works. Then, we’ll cover the basic terminology so you can get used to the words and phrases used when trading foreign exchange. Following the basic terminology, we’re also going to cover the calculations you’ll use in your day-to-day life as a forex trader.
Our guide aims to arm you with the tools to expand your knowledge and understanding of the ins and outs of forex trading before you take on the global markets. If you have some experience with Forex trading, feel free to skip to the sections that interest you. Simply click on the menu headings below to jump to the relevant information for you.

What is Forex Trading and How Does it Work

Foreign exchange, or Forex for short, is a market where you can exchange one currency for another. With a daily trading volume of $6.6 trillion, the Forex market itself is huge! It dwarfs the New York Stock Exchange (NYSE), which, by comparison, only has a daily trading volume of $22.4 billion.
The sheer size of the Forex market attracts a wide range of different participants, including central banks, investment managers, hedge funds, corporations, brokers, and retail traders, with 90% of these market participants being currency speculators! So, what exactly is going on in the Forex market that makes it so attractive to investors around the world?
So imagine that you want to exchange one currency for another. You are essentially selling one currency while buying or “trading” the other.
Now the exchange rate between these two currencies is important when trading forex. The exchange rate is constantly fluctuating, and it is these fluctuations that allow market speculators to make money from trading or potentially lose their investment. These fluctuations are caused by the supply and demand of each currency!
It is also important to note that while you are trading, millions of other traders are also entering the forex market.
So when you “sell” a currency, there is someone else somewhere who is buying that currency. The more people who are trading, the more money there is in the market, which is what we call “liquidity”. As we mentioned, the forex market is huge with millions of traders all over the world. Because of this, the liquidity in the forex market is really high!

What is Forex?

There are approximately 13.9 million traders worldwide who are both buying and selling currencies. As we mentioned earlier, this means that the liquidity of the forex market is really high.
This high level of liquidity means that traders can enter and exit a trade because there will usually be a buyer for the currency you are selling, or a seller for the currency you are buying!
High levels of liquidity have other implications too. If liquidity is high, there are many market participants, so trading costs such as spreads can potentially be lower. It also means that the market is less susceptible to market manipulation! If someone makes a large trade in a market with low liquidity, it will have a huge impact on the price. This does not happen in forex because there is such a large volume being traded!
Now, the forex market, since it covers all the currencies in the world, is effectively open 24 hours a day, Monday through Friday. Trading these currencies is what we call over-the-counter. This means that there is no physical exchange, as with stocks. It is actually a global network in which there is a network of financial institutions and banks that control the market, rather than a central exchange like the New York Stock Exchange. As an individual, you would probably be categorized as a “retail trader.” However, the majority of trading in the Forex market is actually done by “institutional traders,” such as banks, funds, and large corporations. They are not necessarily looking to buy or sell the currency, but are speculating on price movements or hedging against upcoming exchange rate changes.