Forex Trading for Beginners | A Brief Guide to Forex Trading 2020

Forex Trading for Beginners | A Brief Guide to Forex Trading 2020

Trading on the foreign exchange markets (otherwise known as "the forex") is nothing more than direct access to the trading of different types of foreign currencies. In the past, trading on currencies exchanges was limited mostly to large banks and institutional traders. It was simply not available to small speculators because of the large minimum transaction sizes and strict financial requirements. But with recent technological advancements, small traders are now also able to take advantage of the many benefits of forex trading through the use of various online trading platforms.

 

The currencies of the world are traded on a floating exchange rate, and they are always traded in pairs: Euro/dollar, dollar/British pound, Swiss franc/yen and so forth. As a forex trader, you should be aware that about 85 percent of all daily transactions involve trading of the major currencies.

 

The four major currency pairs are usually used for investment purposes. They are: the Euro against the U.S. dollar, the Japanese Yen against the U.S. dollar, the British pound against the U.S. dollar, and the Swiss franc against the U.S. dollar. These major pairs are traded under the following currency acronyms: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Currencies are traded in the same way that commodities are traded: on a straight one-to-one basis with no dividend being involved.

 

Transactions on the forex market are performed by dealers at major banks or forex brokerage firms. The foreign exchange of currencies is a necessary part of the worldwide market and are therefore traded around the clock. Thus, while we in the U.S. sleep, the dealers in Europe are trading currencies with their Japanese counterparts. This means that the forex markets are active twenty-four hours a day, and dealers at major institutions are working in three shifts to keep up with the transactions taking place. It is therefore possible for you to place a take-profit and stop-loss order with brokers for overnight execution.

 

The currency market is the largest and oldest financial market in the world. The daily turnover on the forex market is somewhere around $1.2 trillion, so there is a ready market for any new investor to enter and exit positions without any problem. It is the biggest and most liquid market in the world.

 

When you compare forex trading with the currency futures market, the latter is only one percent as large as the former. Unlike the futures and stock markets, trading in currencies is not centered on an exchange. The trading moves from the major banking centers of the U.S. to the Far East, to Australia and New Zealand, to Europe, and finally back to the U.S. So it is truly a worldwide trading phenomenon.

 

In the past banks, major currency dealers, and sometimes even the very large speculators were the principal dealers in the forex market. These were the only trading entities able to take advantage of the currency market's extraordinary liquidity and strong trending nature of many of the world's primary currency exchange rates.

 

However in today's market conditions, foreign exchange brokers can break down the larger sized interbank units and offer small traders like you and me the opportunity to buy or sell any number of these smaller units. These brokers give any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the big players who once exclusively "owned" the market.

 

The forex market is a quick moving and unforgiving market to become involved with. Then again, no investment vehicle provides a guaranteed profit. If you want to succeed at forex trading, you'd better be prepared to ratchet up your learning curve in order to compete. This means educating yourself with the latest in trading strategies and information before you even think of entering this market.