Foreign Exchange, or FOREX, comes from the international financial market. That is, the Forex market is where different countries' currencies are bought and sold. This is similar to how shares are bought and sold on the ASX, or Australian Stock Exchange.
In the 1970s, when the forex market began, currencies began to float and exchange rates became free. Like stock prices, the prices of currencies traded on the Forex market are affected by the people who trade them. This is because of the law of supply and demand. So, if the market forces say so, like if the US Federal Reserve raises interest rates to stop inflation but the Australia Reserve Bank doesn't, that should cause the exchange rate to change. When this happens, interest rates should cause the US dollar to be worth more than the AUD.
On the Forex market, a huge amount of money is traded every day. The exchange rate makes Forex the most liquid financial market, with 1 to 1.5 trillion US dollars worth of currency traded every day. Because of how big it is, the Forex market can't be changed from the outside. So, neither an individual trader nor a financial institution that deals in it has enough money to change the price of any currency in its favour.
The Forex is so fluid and there are so many trades happening at such a fast rate that no one can affect the market of any major currency. Because there are so many exchanges on the Forex market, traders can open and close positions in a matter of seconds. This is because there are always willing buyers and sellers on the market. This is because the exchange of the different Forex centres around the world is considered to be open 24 hours a day, even though they are in different time zones.
Forex is different from the stock market, which is usually thought of as a place to invest for the long term. In currency trading, even a small change in the price of a currency can make it possible for investors to use many different strategies to their benefit. But there are also long-term hedge investors in Forex and short-term investors who use credit lines to try to make a lot of money in a short amount of time.
HOW FOREX WORKS
Forex doesn't have a central market like the New York Stock Exchange or the Australian Stock Exchange. Instead, the exchange happens over the counter 5 days a week, 24 hours a day, via satellite, between London, Paris, Tokyo, New York, Sydney, Hong Kong, Frankfurt, Singapore, and Zurich, which are all major financial centres. Any major currency can always be quoted by dealers, both in person and online, all over the world.
MARGINAL TRADING
Marginal trading is like using a credit card, and borrowing money to trade currencies is like using a credit card. This makes investors more likely to take more risks by letting them open a bigger trading position with less of their own money and more of the brokering company's borrowed capital.
On the Forex market, margin trading is done in lots. One lot is worth about 100,000 units of currency. The margin needed to hold that $100,000 position is 1% of $100,000, or $1,000. The broker covers the other $99,000.
When you close your trading position, you make up the difference if the value of the traded currency goes up. Your margin account gets credited with the money you put in and the money you made, minus any fees you paid for the trade.
TECHNICAL AND FUNDAMENTAL ANALYSIS OF INVESTMENT STRATEGIES
Of course, you can't trade if you don't know anything about the currency market. For Forex trading to go well, you have to be analytical, which is what all experts do. People call what they do "Technical and Fundamental Analysis."
Technical analysis involves looking at data about how the prices of different currencies have changed over time. From the data, chart patterns are made, and traders can watch how the prices of currencies change to make trading decisions.
The way prices move for each currency is a reflection of everything going on in the market, such as an event, being overbought or oversold, interest rates, etc. Most of these patterns are shown on charts right away by the brokerage firm where you trade.
Fundamental analysis is based on events, such as the political situation, rumours, the economy, the setting of interest rates by the central or reserve bank of the country, news about tax policy, GDP, the country's economic performance, political unrest, natural disasters, the release of employment or unemployment numbers, etc. The value of a currency can also be affected by what people expect, what they think, and what they think will happen. This is called "sentiment" among Forex traders.
MAKE MONEY WITH CURRENCY ON FOREX
To make money from Forex trading, you need to work hard, have a lot of trading experience, and learn about Technical and Fundamental analysis. Everyone who takes part in it should have the same chances, since it is a market that is so liquid and moves so quickly that no one person or fund manager can control it.
