Forex 101: What is Forex Trading? - Money Soldiers
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Forex 101: What is Forex Trading?

Every time we go on holiday, we’re seeing forex trading in play.  When you go to change your pounds for euros, or your dollars for francs, you will not receive exactly the same amount that you handed over.  This is because currencies are traded at the current exchange rate, just as when you trade using an online platform like ThinkForex.

These currency trades that you affect are transacted on something known as the foreign exchange market.  What happens in this market is important to us all, whether or not we realise it.

 

Understanding the Scope and Set-up of the Forex Market

It is not only tourists and those trading internationally who make use of the forex market.  Investors trade from all around the world, exchanging currencies in the hopes of making a profit.  Thanks to the necessity of currency exchange, and its global nature, the forex market is the largest financial market in the world, trading around US $2,000 billion per day.

One way that the forex market differs from other markets is that there is no central marketplace.  Instead, transactions are conducted electronically, via computer networks located all around the world.  This means that the market is open 24 hours a day, five and a half days a week, across almost every time zone.  As such, the market is incredibly active, and price quotes can change almost constantly.

Forex 101 What is Forex Trading Forex 101:  What is Forex Trading?

88x31 Forex 101:  What is Forex Trading?
Forex trading by Allan Ajifo, on Flickr.  This work is licensed under a Creative Commons Attribution 2.0 Generic License.

 

The Three Ways to Trade Forex

There are three main ways to trade forex: via the spot market, the forwards market and the futures market.

The Spot Market

The spot market is where currencies are bought and sold according to their current price.  This price is determined by supply and demand, and is influenced by many different factors, from interest rates to economic performance, political events, and perceived future events.  It is a simple bilateral transaction, whereby one person delivers an agreed currency amount to a counter party, and is handed a specified amount of another currency in return.

The Forwards Market

Unlike the spot market, the forwards and futures markets do not trade in real currencies; instead, they deal in contracts representing claims to a certain currency type, a set price per unit and a future date for settlement.  In the former, these contracts are bought and sold between two parties, who decide the terms of the agreement between them.

The Futures Market

The futures market is not dissimilar to the forwards market, although contracts are bought and sold based upon a standard size and settlement date on a public commodities market.  Individual parties cannot customise certain details of the contract, such as the number of units being traded, delivery and settlement dates and minimum price increments.

 

Now that you understand it a little better, would you be willing to try your hand at forex?

Click Here to Leave a Comment Below 7 comments
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Nick @ Millionaires Giving Money - February 10, 2015

Forex Trading can be very rewarding but its also very risky. Recently with the Swiss Currency a lot of investors got stung and some Forex Brokers went bust like Alpari. I think you need to get your money management spot on so losses do not mount up. Thanks for the post, quite informative.

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Amos - February 13, 2015

Currencies are quite overwhelming to deal with and normally need more expertise. Some of the sites that help you out in this aspect are ADVFN Forex Symbol Table, Exchange Rate, and Go Currency.
Something about For Ex scares me. Its the same feeling I get when people talk about day trading as a viable investment strategy. We’re mainly the buy and hold type. But I have been thinking about putting a small chunk of cash into a separate account to do some more active trading with. Test it out basically.

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Haroun Kola - April 14, 2015

I’ve been trading for about 7 months now, its no walk in the park but just like any other skill, it can be learnt, if you’re learning from the best. In the commentluv article that’s linked, I’ve shared a weekend workshop by Mark Douglas who’s one of the foremost authorities in teaching the mental skills to be a trader (forex or otherwise).

All I can say is that in 5 years time (the amount of time I’ve given myself to figure out if FX trading is for me or not) I hope to have embodied much of what’s taught to be a successful forex trader.

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    Arnel Ariate - April 16, 2015

    Hi, Haroun. Cheers to your trading success.

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      Haroun - July 2, 2015

      Thanks. Though I wouldn’t say I’m successful as a trader yet. Give me 5 years though…

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Moneymaker Research - February 4, 2016

It’s a nice or very knowledgeable article post related to Forex.This very help to trade in Forex.

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Jake Smith - December 16, 2016

Forex Trading is an art. Best traders develop their skills through practice and discipline. Before you start your journey it is important to have some ideas and how to get there.

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