What Is Forex And Why Trade Them?

You must have heard the word FOREX before, either from another blog, advert or from somewhere in this article I will discuss what this means and why you should trade them.

The only thing that you need is just to calmly read this article and jot anything you don’t understand down and either send as a message to me or comment below.

What Is So Special About Forex?

Forex simply means Foreign Exchange (FX) it was coined out from these two words- FOReigh EXchange (FOREX). It also happened that FOREX is also the world most liquidated market of over $5 Trillion, which simply means that the transactions (buying and selling) that is carried out in the FOREX market is worth more than $5 Trillion (which is times 3 of the stock and futures market combined).

ALSO READ: How to Ride the News in Forex Trading

Fx, as it is most times called is the simultaneous buying and selling of currencies. Now, many of you might be wondering how do we exchange these currencies?

Remember that money plays an important part in our lives from buying and selling in our day-to-day activities, to tourism down to export and import, when paying for a goods or services on-line, any foreign transaction you can think of as long as the exchange of currencies is involved, is tied to forex.

 

Trading Forex?

Online (retail) forex as most people call it (in other to distinguish it from -other kind of forex-related activities) is traded through a broker (dealer or third-party trader) to the financial floor (New York Stock Exchange, London Stock Exchange etc.). Forex is traded in pairs example the Euro and US dollar (EUR/USD) or the British Pound and the Japanese Yen (GBP/JPY). Because one is not buying any physical cash it can be quite confusing but lucky you, this website is focus more on forex trading so you will get a hang of it soon.

CHECK OUT: Who or What Is a Broker?

 

Why is Forex Traded more than other Markets?

When most people hear the word “MARKET” they might get confused but when you look at the dictionary definition Of the word “MARKET” you will see how it correlate with the financial market.

The reason why the forex market still remains one of the most traded and liquidated market in the world is because of the trading conditions which are favourable unlike stock and futures, these conditions include:

  • 24 hours trading for 5 working days- so trading forex is similar to you owning your own business, because you can stay up as long as you like.
  • Minimal or no commission- unlike other market, you don’t have to worry about paying brokers/dealers certain percentage of your profit, though brokers are compensated through the Bid-Ask spread
  • Instant market execution- Trade are carried to the market floor at the exact price you placed your trade except doing “high news period” where there may be negative or positive slippage.

NOTE: These are just some of the example why people trade forex.

READ: What Are Exchange Rates?

 

Who Trade Forex?

Forex can be traded by anybody, with just an internet connection, a computer and the right knowledge, then one is set to go. Understand that the major players in the forex market are the banks- central banks, commercial banks, financial institutions etc. –These are the people in charge of the exchange of currencies.

 

Since no physical cash is traded in the financial floor, just the exchange of financial securities. News, natural disaster, geo-politics, exchange rate, government policies etc. Influences prices of currencies a lot, I call all these stuff noise because they cloud the judgement of a trader and distract him.

 

How To Trade The Forex Market?

Unlike commercial traders whose main role is to pay for goods and services in a different currencies, we retail (online) forex are just speculators that is, we trade to make profit. We buy when the price is trending up and sell when it’s trending down these seem easy but remember that price don’t just move in a uniform pace or a straight line, it sometimes move in a disorganize manner.

In other to catch this trend most trader use indicators, “indicators are good but they show the trader want he wants to see and not what he needs to see.” The best way to trade is with the Price Action because you see what is happening in the market without any colour attach to it.

VISIT: Future Trading: What Does It Mean and How Does It Work?

In summary, trading forex has become relatively famous among other financial markets because of the high number of participants and favourable conditions. Most people usually fail because they don’t understand the psychology associated with it, like every other market “money and risk management” does play a vital role in profiting on the longer run. I personally do trade forex because of the trading opportunity in it- volatility and liquidity.  In other to trade this market, greed, fear must be eradicated from your mind-set. There are no get-rich quick schemes out there. With the proper knowledge, preparation and mind-set, one is good to go.

There is no recommended book because there are so many articles and book publish almost every year for forex trades please do search to get the one suitable for you

11 Replies to “What Is Forex And Why Trade Them?”

  1. Tabatha

    i have always see any thing “online” as a scam but thank you for clearing my doubts, i will start to trade forex in the nearest future.

  2. Maureen

    i have been hearing much about forex trading but never really paid much attention to it until i read this article, thanks so much for explaining it to me.

    • Iyke

      i am so happy you learnt a thing or two from this article, please do read more to understand how forex and the financial market works. Thanks

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