What is forex?
is the global market that allows the exchange of one currency for another.
If you ever traveled to another country, you usually had to find a currency exchange booth at the airport and then change the money you had in your wallet to the currency of the country you are visiting.
Go up to the counter and see a screen that shows different exchange rates for different currencies.
You find “Japanese yen” and think: “WOW! Is my dollar worth 100 yen? And I have ten dollars! I’m going to be rich!”
When he does this, he has essentially participated in the forex market! You have exchanged one currency for another.
Or, in terms of forex trading, assuming you are an American visiting Japan, you sold dollars and bought yen.
Before flying back home, stop by the currency exchange booth to change the yen that miraculously left over (Tokyo is expensive!) And you notice that the exchange rates have changed.
It is these changes in exchange rates that allow you to earn money in the currency market.
The forex market
which is generally known as “forex” or “FX,” is the largest financial market in the world.
Compared to the “miserable” volume of $ 22.4 billion per day from the New York Stock Exchange (NYSE), the forex market looks absolutely huge with its trading volume of $ 5 TRILLION per day.
That is a billion with a “t”.
Let’s take a moment to put this into perspective using monsters …
The world’s largest stock market, the New York Stock Exchange (NYSE), is trading at a volume of approximately $ 22.4 billion per day.
It looks intimidating. Some may even find it sexy.
You hear about NYSE in the news every day … on CNBC … on Bloomberg … on BBC … heck, you probably even hear about it at your local gym. “The NYSE has risen today, blah, blah.”
When people talk about the “market,” they generally refer to the stock market. So, the NYSE sounds big, it’s loud and likes to make a lot of noise.
That huge $ 5 billion number covers the entire global currency market, BUT the daily trading volume of retail traders (that is, us) represents between 5-6% of the total volume, or between $ 300-400 billion .
As you can see, the forex market is definitely huge, but not as big as others would like it to believe. We do not like to exaggerate. We just keep it real.
The forex market is open 24 hours a day and 5 days a week, and only closes during the weekend. (What a bunch of bums!)
So, unlike stock or bond markets, the currency market DOES NOT close at the end of each business day.
Instead, trade only moves to different financial centers around the world.
The day begins when merchants wake up in Sydney, then move to Tokyo, London, Frankfurt and finally to New York, before the trade starts again in Sydney!
What is traded in forex?
The simple answer is MONEY.
Because you are not buying anything physical, currency trading can be confusing.
Think of buying a currency like buying a stock in a particular country, something like buying shares of a company.
The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy.
In currency trading, when you buy, say, the Japanese yen, you are basically buying an “action” in the Japanese economy.
You are betting that the Japanese economy is working well and will even improve over time. Once you sell those “shares” back to the market, hopefully, you’ll end up making a profit.
In general, the exchange rate of one currency against other currencies is a reflection of the condition of that country’s economy, compared to the economies of other countries.
By the time you graduate from this School of Pipsology, you will be eager to start working with coins.
While there are potentially many currencies with which you can trade, as a new trader, you will probably start trading with the “main currencies.”
Take NZD for example. NZ means New Zealand, while D represents dollar. Pretty easy, right?
The currencies included in the previous table are called “major” because they are the most traded.
We would also like to let you know that “money” is not the only nickname for USD.
There are also: green notes, bones, benjis, benjamins, cheddar, paper, loot, scrilla, cheese, bread, moolah, dead presidents and cash.
So, if you wanted to say, “I have to go to work now.”
Instead, you could say, “I have to bounce! I have to make them benjis son!
Fun fact: Did you also know that in Peru, a nickname for the US dollar is Coco, which is Jorge’s pet name (George in Spanish), a reference
Buying and selling currency pairs
Forex trading is the simultaneous purchase of one currency and the sale of another. Currencies are traded through a broker or dealer, and are traded in pairs.
For example, the euro and the US dollar (EUR / USD) or the British pound and the Japanese yen (GBP / JPY).
When you trade on the Forex market, you buy or sell currency pairs.
Imagine each currency pair constantly “pulling the rope” with each coin on its side of the rope. Exchange rates fluctuate on the basis of the strongest currency at the present time.
Major currency pairs or secondary currency pairs
Currency pairs that do not contain the US dollar (USD) are known as cross currency pairs or simply “pairs.”
Major crosses are also known as “palace”.
The most active currencies are derived from the three major currencies other than the US dollar: the euro, yen, and pound.