Since many people are talking about it, have you ever wondered what is it all about and how you can also be part of the community and start earning big? Well, it’s simple, forex trading is speculation on the price of one currency against another. For example, you think that the US dollar (USD) is going to rise against the Euro, so you then buy the USD at a low price and then when it goes high you then sell it at the higher price. However, this comes with a lot of risks you need to be aware of before joining as it is not only gains and rewards but has losses from time to time.
The forex market is where all the banks, businesses, governments, investors and traders exchange and speculate the currencies. The forex market is also known as the FX market. Forex Trading is also known as FX. The forex market is very large with an average of 3.6 trillion being traded daily. The forex market is open 24 hours a day every 5 days a week. The most important world trading centres are located in Sydney, London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Paris and Singapore.
A brief history of the forex market
The gold exchange standard was implemented as early as 1876 which meant that all paper currency had to be backed up by solid gold. The idea was to stabilise the world currencies by pegging them to the price of gold which was a good idea in theory but in reality, it created a burst of patterns which led to the downfall of the gold standard. The gold standard dropped severely at the beginning of the Second World War since major European countries did not have enough gold to support the currency they were printing to pay for the large military projects they had going on. Although the gold standard dropped, it never lost its monetary value.
The world agreed to have fixed exchange rates in which the USD was the primary reserve currency which would be the only currency to be backed by gold known. This agreement is popularly known as the Bretton Woods System and it took place in 1944. In 1971, the United States declared that it would no longer use the USD as the main currency for the exchange of gold and it marked the end of the Bretton Woods System. This break led to the global acceptance of floating foreign exchange rates in 1976. It gave birth to the foreign currency exchange market which did not become widely electronically traded up until the mid-1990s.
Skills needed to be the best Forex Trader
The most amazing potential lifestyle of any profession in the world is being a forex trader. It is not easy to get there but once you are there it shows you are determined and disciplined and only you can make it happen. To reach your goals in the forex market the following skills are required of you:
- Ability – to take a loss without being emotional since forex trading comes with lots of risks
- Confidence – to believe in yourself, trading strategies and to not have any fear at all
- Dedication – to becoming the best
- Discipline – to remain calm and unemotional in the market when trading
- Flexibility – to successfully trade changing market conditions
- Focus – to stay concentrated on your plan
- Logic – to look at the market from an objective and straight forward view
- Organisation – to reinforce and forge positive trading habits
- Patience – to wait for the highest profitability trading strategies
- Realism – to not think you will get rich instantly and understand the reality of the market
- Self-control – to not over trade
Who trades Forex and why?
The following is a list of the traders and reasons why they are active in trading:
- Banks – The interbank market allows for both the majority of the commercial forex transactions and very large amounts of speculative trading daily. This trading is done on behalf of the customers by the bank sometimes, however, the majority of it is done by proprietary traders who are trading for the bankers own account.
- Companies – They need to use the foreign exchange market to pay for services and goods from foreign countries as well as to sell goods or services in foreign currency. This is an important part of the daily forex market where companies will be looking to exchange currencies in order to transact in other countries.
- Governments/Central Banks – The central banks of countries play an important role in the foreign exchange markets as this can result in the increase or decrease of the value of the country’s currency. This can be caused by trying to control the money supply, inflation and interest rates. Substantial foreign exchange reserves can be used to try to stabilise the market.
- Individuals – These can be individuals who would have travelled from their country and exchanged their money into a different currency at an airport or in a bank.
- Investors – These can be investment firms that manage large portfolios for their clients to facilitate transactions in foreign securities.
- Retail Forex Traders – These are rapidly growing daily with their ease of accessibility on the internet. They get access to the market indirectly through a broker or a bank. There are two main types of forex brokers that are brokers and dealers. Brokers work as an agent for the trader by looking for the best price in the market and doing the trading on behalf of the customer. They charge a commission on top of the price charged by the market. Whereas dealers make the market for traders and act as the counter-party to their transactions.
Advantages of trading
- You can trade whenever you want as long as it is from Sunday night through to Friday night
- You can trade from anywhere in the world
- The forex market is the largest market in the world which is easy to get in and easy to get out
- Ease of access to the forex market
- There are fewer currency pairs to trade with
- You can do commission-free trading with many retail marketers
Major currency pairs in trading
The following are the top currencies used in trading making it simpler:
- European Euro (EUR)
- US Dollar (USD)
- Japanese Yen (JPY)
- British Pound (GBP)
- Swiss Franc (CHF)
- Canadian Dollar (CAD)
- Australian Dollar (AUD)
- New Zealand Dollar (NZD)
Getting rich with Forex Trading
Everyone wants to be rich, it is everyone’s dream to become rich. Making up lots of money by Forex trading depends entirely on certain special conditions. You can make millions by investing in Forex when you have the right conditions. However, you can also do nothing but waste time and money when you do not have the proper skills when trading. One thing for sure is that forex trading is not a get rich quick type of scheme but it is a skill which takes time to learn. Once you are skilled you can indeed make lots of money in this field because its different from other fields were you can learn a skill overnight. Well, if your aim in forex trading is to quickly get rich, I can almost guarantee that you’re going to break. Why? For what? And, before you realize what you are doing, you can take too much chances and use too much leverage early on. Plus, be rational. If you make all of that money, somebody has to lose it, right? Would you think you’ll be so much better than so many people that quickly? Trade wisely and remember patience is required for you to get there.