Forex is a global currency market where everyone can earn trading on the difference in exchange rates. The foreign exchange market started its history in 1971 when the gold standard was cancelled. Back then all transactions were executed in the halls of the stock exchanges and by phone. But with the development of modern technologies, Forex trading has moved online and has become much easier.
How does forex work?
The foreign exchange currency market is open around the clock from Monday to Friday. Not only large corporations, companies and other legal entities have access to Forex, but also individuals who want to make money online. Currency trading is usually done through Forex brokers. A trader speculates on the future direction of the market, opening either a long or short positions.
Forex trading refers to selling or buying of one currency for another. Currency is the object of trading. Each transaction involves two currencies, that is, a currency pair. EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, and USD/CAD are the most traded and highly liquid currency pairs in financial markets. They are called majors.
The currency pair is written as a ratio, for example, GBP/USD. The first currency is the base currency when the second one is the quoted currency. For example, the GBP/USD price shows how much of the US dollars it takes to buy one unit of the British pound.
What affects the exchange rate?
Exchange rates are based on the demand and supply. The demand for currency depends on economic and political factors. Traders monitor the important macroeconomic events on the economic calendar. You can found it on thematic and analytical resources such as Investing and websites of forex brokers.
The economic calendar contains the events themselves, date and time the publication will take place, the degree of impact, as well as their previous, forecasted and actual values. The market is always waiting for the publication of important economic indicators and directly responds to them. The greatest volatility is observed at the time of the news publication. For example, if the forecast does not match the released indicator, the currency may fall in price.
Financial market participants
Forex is formed by a certain number of participants, ranging from large banks to individuals. All of them pursue their goals and interests.
- Central banks are responsible for the value of money, money supply, directly affecting the cost of exchange rates.
- Commercial banks conduct the bulk of foreign exchange transactions both on their own and their client’s behalf.
- Exporters or importers exchange currency from time to time.
- Investment funds invest in other countries securities.
- Brokers help private investors to enter the market. They bring together buyers and sellers.
- Individuals conduct speculative operations.
How to get started on Forex
You can start working on Forex instantly. To do this, choose a broker, open an account and make a deposit. However, first, you should open a demo account, which provides an opportunity to trade virtual money. With demo accounts, you will practice and protect yourself against large monetary losses. Even experienced traders use demo accounts to apply new tactics and strategies.
After trading on a demo account, you can switch to real trading. However, to make a profit on real accounts, the trader should know the basics of forex and methods of fundamental and technical analysis. Analytics is an integral aspect of trading. You can analyze the market yourself. If you are not confident in your abilities or are just starting your acquaintance with the foreign exchange market, you can read analytical materials from JustForex broker. The broker provides daily forecasts for currency majors, market overview, as well as technical analysis.
Invest your time in reading trusted websites, forex forums, books, as well as watching video tutorials. Intuitive trading won’t make you a professional trader.