What is Forex?

The word Forex or FX stands for Foreign Exchange, and it is the simultaneous buying of one currency, in addition to selling of another. It is the largest financial market in the world. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or Great British Pound/Japanese Yen (GBP/JPY). The Forex Market handles a huge volume of transactions 24 hours a day, 5 days a week.

Forex was established in 1971 and grew steadily throughout the 1970’s. However, with the technological advances of the 80’s, the Forex market expanded from trading levels of $70 billion a day, to the current level of about $3.00 trillion. In comparison, the United States Treasury bond market makes an average of $300 billion a day, as well as the combined American stock markets making about $28 billion a day. As a result, you can see how enormous the Forex market really is. Extraordinary, forex actually equates to more than three times the total amount of the stock, and futures markets combined all together.

• What drives the Forex market?

Different countries use different currencies. However, a cross-border transaction takes place. If the whole world used one currency, then there would be no need for the Forex market to exist. The need for the Forex market comes from the need of exchange between countries, which in return reflect to the need for currency exchange.

The prices of currencies are determined by the supply and demand. Supply and demand are the factors that determine the price in any market. When there are too many buyers and sellers, the price volatility will be much higher and the market will be more dynamic. The price will go up and down more frequently. When the price goes up we buy, and when it goes down we sell and make profit. Unlike other markets that are subject for price manipulation, FX is simply too big for one entity to control.

• How can you make money?

Buying low and selling high, or selling high and buying low, is the foundation of making money in Forex. For example, if you buy Euros against USD when each Euro is equal to 1.4800USD, and then sell it when it is 1.4850USD, you have made a profit.

The big subject is that how can you identify the moment in time to buy, and how can you recognize that if you buy, the price will appreciate and you will make a profit. This is the most important question that makes you a successful trader.

There are two methods to know the most favorable time to buy and sell: Technical and Fundamental analysis.

In technical analysis, you can forecast the direction of the price by indications of analysis you completed on the price chart, and also with the assist of some special tools that are called technical Indicators.

Technical Analysis is a science, which if you desire to start working on Forex, you need to learn it properly in-order to become an experience trader. It is not difficult to learn technical analysis.

The other method is the Fundamental Analysis. This analysis is used to forecast the future of currencies prices according to the economic and even political situation of the world and important developed countries like USA, UK, Germany, and Japan.

Fundamental analysis has a long term usage, but good traders can predict the sudden changes that happen after releasing important news about economic situation of an important country. For example, when the news says that economic situation of Germany is improved for 2 %( GDP) in comparison to the last month, Euro will gain strength and people start buying it. As a result, the value of Euro will appreciate because of the sudden increase of demand. If you know the result of the news on the price, you can acquire the appropriate position and make money. However, there are two sides in this story, which means if you take the wrong prediction, you will lose. The best advice is too buy the rumor and sell the fact.

• What is traded on the Foreign Exchange?

The simple answer is money. Currencies are traded through a broker and are always traded in pairs. For example, the US Dollar against Euro, or the English Pound against the Japanese Yen. Other aspects of Foreign Exchange are Futures, CFD Stocks, Metals, and Energy. For further info on these products please check the Forex Products page.

• Which currencies are traded?

The most popular currencies are:

EUR	Euros
USD	United States Dollar
CAD	Canadian Dollar
GBP	British Pound
JPY	Japanese Yen
AUD	Australian Dollar
CHF	Swiss Franc
NZD	New Zealand Dollar

• When does Forex trading occur?

The first session is the Tokyo session, which begins each week on Monday morning in the Asia-Pacific region, which is Sunday night in the Middle East, moreover its Sunday evening in America. Trading continues non-stop, moving into the London Session. Furthermore, trading continues to the New York Session, until all markets close on Friday late afternoon.

Forex Trading Advantages:

1. High liquidity: The Forex market is the highest liquid market in the world. The fact that about $3.00 Trillion are traded a day, traders tend to be provided with a maximum chance in finding a counterparty to execute their trades, with a minimal risk of one party controlling the flow of the market.
2. Efficiency: Forex is a 24-hour market, which works through a network of Electronic Communication Networks (ECNs). These ECNs exist to bring together buyers and sellers when possible. However, with the liquidity and connections between banks, traders have the highest efficiency in the execution of their trades.
3. Cost: Forex trading costs less than any other market. Unlike other market that usually charge high commissions, the income of the Forex broker relies mainly on the spread, which is the difference between buying and selling prices.
4. Leverage & Margin: The leverage used in the Forex market, allows traders to make the most out of their equity. With 1:100 leverage, the trader can enter the market with $100,000 lot just with $1,000 equity. This option maximizes the opportunity to maximize profits in the market, making the trader have no limits on realizing the revenues.
• Why is Forex so popular?

Trading Forex is easy, anyone can do it. You don't have to be a financial expert, as well as to watch Bloomberg TV every morning, or buy financial newspapers to make your trading decisions. With the recent introduction of Forex trading through the internet, the Forex market has attracted a wide range of home users and businesses. It’s possible to trade in the largest market in the world, with the least effort. Vast profits and thrilling challenges that are associated with Forex, had made forex more popular than any other financial market in the world.

Forex Terminology:

• What is a Pip?

Pips stands for (PERCENTAGE IN PIONTS).Its a unit of measurement to the smallest change in the price of a currency pair. Pips are the last decimal point in an exchange rate or currency pair. For the majority of currencies, a Pip is equal to 0.0001. This means that if you bought EUR/USD at 1.4500 and sold at 1.4505, you made 5 pips.

• Lot

The value of a pip changes based upon the size of your account. A standard account is 100,000 units of the base currency. If you are trading in USD, the Value of the LOT in the standard account is $100.000. A mini LOT is 10,000 units of the base currency. However, if you are trading mini LOT, you can leverage to $10,000. This is why a pip in a mini account is worth less than a pip in a standard account. The pip value for a mini LOT is usually worth $1, while for a standard LOT is worth $10. In addition, it differs slightly from one currency pair to another.

• Leverage

Leverage is by mean of using more than your money in trading with. 1:100 leverage means, that you can trade with $100 by only putting $1 in the market. This is the one characteristic that makes Forex trading attractive. For example, for every $1,000 you invest, you can trade 1 lot of $100,000. If you invest $8, 000, this will allow you to trade up to $800,000. Forex trading is a rewarding investment return, and has been attractive for traders, in that reason brokers offer high leverage.

Cautiously, traders need to be careful, or else it’s a double sword and involves risk.

• Can I trade from home?

You can trade from anywhere. Home, work, or on a lovely vacation by the beach. If you like traveling, this is a dream business. With your laptop or your mobile phone you can simply trade Forex, and make money anywhere in the world that has an internet connection. Forex trading is not bound to a trading floor and is not centralized. It is considered an Over-the-Counter (OTC) market.

• What Tools Do I Need to Start Trading Forex?

A computer or a mobile phone with a high-speed Internet connection and you are set to go!