What is forex?
At some point in our lives, we have heard the term forex at least once. Forex is also known as foreign
exchange. We use forex when we trade currencies, buy stocks, or exchange one currency for the other.
The forex market also called Fx market or Foreign exchange currency market, has been open since the
1990s, making it a central point for people and businesses of all sizes to participate in forex trading.
As a result, the forex market has become one of the most lucrative financial investments in the world.
It sees a turnover of approximately $3 billion per day.
The forex market is open 24/5 with centers located around the world including Hong Kong, Paris,
Sydney, New York, and more. As the day ends in the Western hemisphere it begins in the Eastern
hemisphere. Traders can enjoy the rush of forex trading at all hours of the day or night.
Forex trading focuses on the trading of foreign currencies, specifically the major currencies such as
US dollar (USD), the Euro (EUR), British pound (GBP), Japanese Yen (JYP), Australian Dollar
(AUD), Swiss Franc (CHF). These currencies are grouped into currency pairs. Traders trade with
currency pairs selling one pair for another; thus, riding the market highs and lows in order to gain a
profit.
To help you identify currency pairs, see the below table for easy reference:
Major Forex Pairs Nicknames
NZD/USD Kiwi
USD/JPY Dollar Yen
GBP/USD Sterling or Cable
EUR/USD Euro
USD/CAD Dollar Canada or Loonie
AUD/USD Aussie Dollar
USD/CHF Swissy
How to trade forex
Forex trading revolves around currency speculation, which currency is doing better than the other
currencies. Traders watch the forex market for trends, highs, and lows. They strategize, analyze, and
gather information to make an educated guess on what currency to buy or sell at a specific point in
time. The manage their risk and rein in their emotions. Successful forex trading is all about careful
logical and composed trading.
Benefits of forex
You may be wondering what are the benefits to trading forex. As with all investment options, forex
trading comes with its pros and cons. Let’s look at some of the benefits to forex trading:
1. High liquidity – The forex market consists of many traders, trading on the market at any
hour of the day. This means that when you want to buy or sell currency, you always have
someone who wants to either sell or buy your currency pair. You are never stuck with stock
that you don’t want.
2. Flexibility – Traders can trade around the clock on the global forex market. Regardless of
whether you are a part-time trader or a full-time trader, you can set your trading hours to suit
you.
3. Trading on margin – This is all about leverage. A trader would invest a small amount of
money, say $1,000, and receive an amount of $100,000 to trade with. The margin ration is
now 1:100. The idea is to trade larger sums of money at a minimum risk. As a forex trader
you can invest a smaller amount of money ($200, for example) into trading than stocks
because of the margin amounts available.
4. Free resources – Most forex trading platforms allow new traders and experts to trade
with a demo account. This is great for trying out new strategies or tweaking existing
strategies before entering the live forex market. You can also access many websites that
provide articles, ebooks, and online courses for free on forex trading. Let’s not forget that
some of these trading platforms also provide an option to chat live with a consultant or forex
trader.
5. Forex trading tools – Forex platforms do take advantage of the latest technological
advances by providing their users with relatively new platforms, software and other tools to
assist traders with their trading.
6. Take on students – A professional forex trader finds themselves in a position to become
account managers of other traders accounts and assist beginner traders.
These are just some of the benefits to trading forex. As you can see, forex is definitely an intriguing
option to grow your investment funds.
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