Forex – basic information
You’ve probably heard about Forex (Foreign Exchange Market or Currency Market). In today’s entry I will tell you about how it works and why it’s worth to become interested in it.
What is Forex?
It is the most liquid and the most important market in the world. The whole global economy, investments, and speculations flow through it.
FX Market is decentralized; it doesn’t have a physical address. Trading on FX is possible through a computer network, electronically, among all the traders in the whole world. Currency Market operates 24/7. Every trading day consists of three sessions:
- Asian 00:00am-8:00am GMT
- London 8:00am-08:00pm GMT
- American 8:00pm-00:00am GMT
Forex market deals with transactions worth millions of dollars. It is 10 times bigger than all the other markets in the world.
On FX, you trade currency pairs. We can divide them into four different groups:
How did the market form?
Boom on the market was caused by:
- Fast economic growth
- Technological development
One of the best achievements of the digital era is virtualization of money. In the 90s, this technology was noticed as a huge opportunity for the companies, which made currency trading possible. Those companies are called Forex brokers and they allow everyone, even without a huge capital, to give it a shot on FX.
Why is it worth it?
There are many reasons, why this market is worth to look into. Besides the fact that investing FX makes you feel the adrenaline rush, it offers you the higher investment return rate than other assets. Furthermore, the financial leverage available on that market, allows you to increase your capital faster. Don’t forget that you can loose your capital just as fast as you can earn it. You need to learn how to control the leverage, as then trading on Forex is much more fun.
On the currency market, you can make money on the price increase, but also the price drop. Why? Because on Forex, you earn on pips (Percentage In Point). Pip is a basic value – the fourth digit after comma, or, when paired with JPY, the second digit after comma.
If the exchange rate of EUR/USD has changed from 1.12344 to 1.1240, we say that the rate has increased by 6 pips. If it would change from 1.1234 to 1.1224, we would talk about 10 pips drop. Whether we earn or lose, depends on the number of pips.
As opposed to other markets, Forex is widely accessible. You just need to install a platform, where you can make transactions, and register with a broker. A lot of brokers allows you to enter the market with a very low capital (even 200 USD or less).
You don’t have to start with your own money. You can use a demo account, which is a trading simulator, and learn. It’s worth to mention that Forex is connected with high risk and it can be higher or lower comparing to other markets.
To sum up, Forex Market is a great place for investments, but without learning about it first, it can be very difficult. Acquiring basic knowledge is not hard, you just have to look it up on the Internet. Investing on FX can be risky, so only invest money you’re not afraid to lose it. Why? Because you want to avoid being in debt. Please don’t take loans or play with money you can’t lose.
Thank you very much for reading, I hope you liked this article.
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