When it comes to foreign currency and exchange, the first thing that comes to mind today is Forex. If you want to trade in the largest market in the world and start making profits, now is the time to learn what forex is. In order to invest and make a good profit, many people try to get information about what Forex means. So what is Forex? What is Forex trading? How to trade Forex? How to start Forex trading? This article is for those who are curious about this subject.
If there is something better than making money, it is being able to do it quickly. The Forex market has also managed to attract all of our attention with this feature. The purpose of this article is to explain “what is Forex”. It’s about getting to know it better, learning what it really looks like and helps you decide if it’s right for you. You can find detailed information about the forex industry in this article.
1. What Does Forex Mean?
- 1. What Does Forex Mean?
- 2. What Is the Forex Market?
- 3. How to Make Money on Forex?
- 4. How Does the Forex Market Work?
- 5. How to Start Forex Trading?
- 6. How to Learn Forex?
- 7. How to Trade Forex?
- 8. What Are the Benefits of Forex Trading?
- 9. What Are the Risks of Forex Trading?
- 10. What are the Smart Ways to Succeed in Forex Trading?
It simply means currency trading. Because it represents the transactions that take place according to the value of the currencies of the countries against each other.
Forex is the market where investments are made on these conversions. It is the world’s largest market with a daily trading volume of around 7 trillion dollars as of May 2021.
If you plan to make a profit by converting your savings into dollars on the mobility in currencies, you will do the same in Forex. You may simply think that you are performing your transactions in the exchange office in a more professional way.
In addition to hundreds of currency pairs, gold, silver, corn and the shares of companies such as Apple and Facebook are also subject to Forex transactions. The market makes it possible to invest in these instruments in non-physical ways by taking advantage of the price difference.
2. What Is the Forex Market?
Forex Market is a global exchange place where all the transactions among different currencies take place. Since the trade, connection, and finance are worldwide reachable, forex becomes the most liquid and largest market in the world.
The market has a decentralized structure. In other words, we do not say that Forex is managed from the USA or somewhere else. It works through financial centres located in every corner of the world. However, the world’s largest stock exchange is the New York Stock Exchange with a daily transaction volume of around 20 billion dollars.
Forex, on the other hand, hosts a daily transaction volume of approximately 7 trillion dollars. This is a huge difference compared to the NYSE. This feature causes us to recognize it as the world’s largest financial market.
The global structure of the market allows it to remain open for 5 days and 24 hours, excluding weekends. In this way, you can make uninterrupted transactions from the night connecting Sunday to Monday to the night connecting Friday to Saturday.
Staying 5/24 connected to the foreign exchange market allows you to trade while the US trading time is open. So you can wake up at 3 in the night and open your computer and buy and sell dollars. Because forex is an online industry, you can open your computer or smartphone and trade whenever and wherever you want. Also, you can easily make all your transactions on the platform on which you manage your investments.
Advantages and Disadvantages of Forex Market Structure
The market structure that does not exist in the stock exchange has both great advantages and significant disadvantages.
- With its large structure, you can make your transactions within seconds and get daily earnings. However, this causes you to take more careful action.
- You can make bidirectional transactions and evaluate falling prices. Moreover, you do this simply by placing a sales order.
- It is a market where leveraged transactions can also be made. However, it is a feature that should be used correctly. If you do not know how to use the feature, you will increase the loss you will experience.
- With its global structure, the diversity of investment instruments in Forex is also high. You trade with hundreds of different currency pairs. Additionally; you can easily add instruments such as precious metals, industrial metals, stocks, agricultural products and stock market indices to your portfolio.
- In Forex, you trade instruments in non-physical ways. In this way, you can create instant positions in agricultural products such as cocoa and cotton. Likewise, you can easily buy and sell Apple shares.
3. How to Make Money on Forex?
Another curious question is how to make money on Forex. As in every market, there are risks in Forex. And as long as you can manage them, you can earn money.
Due to the market structure, it offers a faster profit than the stock market. You can reach strong profits in the short term. However, this also requires you to be more careful. Therefore, it would not be wrong to say that you are making money as long as you can keep up with the rhythm of the market.
The market offers short-term returns with its high daily trading volume, ability to trade quickly, open two-way positions and leverage. As a knowledgeable and experienced investor, you will have these returns.
4. How Does the Forex Market Work?
Forex is a free market that provides foreign exchange trading transactions in many different currencies, mainly Dollar and Euro. Thus, it is tried to be earned in foreign currency, accompanied by continuous trading. Online transactions take place directly between the two parties. In other words, it works over the communication networks established between the participants.
Each of the participants is interconnected by electronic communication networks. When a participant places an order on his internet-connected device, it is immediately transmitted to the market.
In the market that is open 5/24, your order will be executed instantly with the effect of high transaction volume. In other words, when you place an order to buy the 100 dollar EUR / USD parity at the level of 1.20, it will be instantly reciprocated. Yours matches the order of another participant who placed a sell order at this level.
Exchanges of 0.0001 units are processed in the market. Therefore, you can make a profit by selling the parity you bought from 1.2000 when it is 1.2002.
Its massive structure allows you to profit from minimal changes. Since this structure works 5/24, you will be able to make your transactions in the same environment with all world investors.
It also has many different features.
– Thanks to its special system, it provides the opportunity to make transactions including small amounts.
– Transaction prices are determined through intermediary institutions.
– The records of the transactions made are kept within the forex brokerage houses.
– The criteria for all transactions are determined over the difference in exchange rate within the scope of foreign currency.
– While offering high profits as in many different investment systems, it also carries a significant risk of loss.
– It is the free market with the highest trading volume and the highest liquidity.
5. How to Start Forex Trading?
If you have decided to invest in Forex, you should start the market entry process. For this, first of all, the impact documents that have information about the brokerage houses mean that your rights as an investor will be protected. It also shows that you will make an investment legally.
After reaching the legal intermediaries, you should evaluate them and make your choice according to their service quality. After selecting the brokerage house, you should read the framework agreement and risk reporting form before creating your account.
Of course, you need to learn how to trade forex.
Addressing the question of how to trade in Forex, on the other hand, it is possible to say that it takes place in “over the counter” markets. In particular, trading transactions to be made are provided within the scope of the market system realized through banks. Many people who want to invest in this direction and want to enter the market can buy and sell online by evaluating different platforms. Especially with the increase in technology and the power of the internet, the Forex system has become very important internationally in terms of transaction volume.
How to Open a Forex Account?
In order to open a Forex account, it is necessary to contact a brokerage firm. In this direction, it is possible to get information via the live support line connection on the relevant website of the institution. Thus, after meeting with the customer representative within the scope of the site, the forex account can be opened by applying the necessary steps sequentially.
6. How to Learn Forex?
One of the good things about the market is the free education opportunities. Each of the intermediary institutions has various training sets. It is possible to use them for free.
The training set includes books, videos and a demo account. At the same time, they present the subjects that need to be known about the market as articles through their blogs.
Almost all of the intermediary institutions have formed a training staff. You can see a few of them publish Forex books in print. You can expand your knowledge by purchasing these books as well.
The most useful tool in the set is demo accounts. These allow you to trade in the market with virtual money. What could be better than seeing the theoretical knowledge you have acquired in practice?
Demo accounts are the best tool to get you ready for the market. You gain experience by trading as in the real market in these accounts with $ 100,000 worth of virtual money.
Besides them, there is lots of source knowledge on forex. For example, you can check our learn category dedicated to forex education topics. It’d be helpful both for beginner and intermediate forex traders.
7. How to Trade Forex?
You do not need to leave your current location to trade Forex. Just open the program installed on your computer or smartphone.
Within seconds, you can profit from the rise of the dollar, the depreciation of the euro, and gold.
Just as you buy products for money while shopping, in the Forex market, you also buy and sell in exchange for the money in your account.
In the Forex market, you can perform this process in a much simpler way and you will make a profit in a short time.
With a transaction volume of around 7 trillion dollars, you will perform your transactions in Forex on highly developed platforms. You can even profit from very delicate changes within minutes.
This is related to both the transaction volume and the opportunity we call the leverage system.
What is Leverage in Forex?
Leverage in Forex is a system in which a trader borrows money from the broker to invest in various currencies in order to increase profits. In other words, it refers to the amount of debt that investors use to raise their profits when investing in the Forex market. In the Forex market, investors can maximize their profits by taking a position up to hundreds of times the amount in their accounts by using leverage.
Thanks to the leverage system, you will be deemed to have made the transaction with your 100 dollars with 1000 dollars and the profit you will earn is 10 times this way.
Of course, as the profit increases in the leverage system, the risk increases. For this reason, you need to do this consciously.
The most basic and simple logic of making money; If you think the dollar will appreciate against the euro, you buy the euro and the dollar and expect the dollar to rise.
When the dollar rises, you sell it and you buy the euro again. In this way, the difference in purchase and sale is your gain.
In the Forex market, there is a parity value for each investment instrument. This concept refers to the value of the euro against the dollar in our example.
So USD / EUR is a pair and you place an order on this pair. When you place a buy order on the USD / EUR parity, the brokerage firm will understand that it will sell the Euro and buy the dollar.
You place the buy order when you predict that the value of the parity will increase. When your prediction is realized, you buy Euros and sell dollars by placing a sell order. In this way, you will also make a profit.
The question of where brokerage houses are making money is also very curious.
Brokerage houses, just like exchange offices, make their own gains from the difference between the purchase and sale of parities.
As you know, every investment instrument has a buying and selling value. You can see these values in order on your Forex trading platform.
Another difference of Forex from exchange offices arises at this point; You can also earn money while the dollar is falling. This feature is called two-way trading and it allows you to profit from every price movement.
8. What Are the Benefits of Forex Trading?
Forex has a global mechanism. It is administered through trade centres around the world. Thus, in the world’s largest market, you make your transactions on advanced systems.
The diversity of investment tools is also high, depending on its global nature. While trading with almost all currencies in the world, you make non-physical transactions with tradable goods.
At the same time, world-famous stocks and stock market indices are also subject to transactions.
The market has a reliable control mechanism. Thanks to two-way transactions, you can win not only the time when prices are rising, but also when they are falling. If you think the prices will rise, you create a buy position. If the prices are going to decrease, you can make a sell transaction.
Thanks to the leverage system, you can increase your earnings by 1 to 10. You can also make a $100 transaction with $10, resulting in a profit of over $100. However, you will increase your risks at the same rate.
You do not pay commissions or transaction fees for your Forex transactions. In this respect, it is seen as a more advantageous market compared to the stock market.
Another feature is that the risks can be controlled. You can deal with risks and situations by taking profit and stop-loss orders.
9. What Are the Risks of Forex Trading?
The Forex market has many good aspects, but there are also some risks. However, these risks can be easily limited for an experienced investor.
Novice investors can learn how to deal with risks with free training. So what are these risks?
Illegal brokerage houses are the leading risks in the market. They started deceiving investors by promising attractive trading opportunities and leverage as high as 1:300.
Another risk is that it is a market sensitive to economic and political developments. In the market with a daily trading volume of $7 trillion, a sudden political development can be seen as an excessive fluctuation in prices.
For example; An unexpected tweet by Trump for a country would cause excessive volatility in prices. While experienced investors may somehow cope with this situation, novice investors may face losses.
Another risk in Forex is the use of high leverage. It has been observed that investors with insufficient experience are under greater burdens than they can handle with high leverage.
Finally; In a sense, the fact that the market is open 5 days and 24 hours is a risk. If you become dependent on the market and cannot get up from the screen, your chances of making mistakes will increase. In this case, you will start to encounter losses instead of gains.
After doing a few transactions, you should step aside and look at what is happening in the markets. In this way, you can both open more profitable positions and not increase the risks.
10. What are the Smart Ways to Succeed in Forex Trading?
The factors that will contribute to the price movements that occur can make the predictions a little difficult. However, you should not forget that you are gaining in the short term because of these.
Prices move with the forces of supply and demand. You also gain when you anticipate these fluctuations correctly. Therefore, it is important to follow the market well.
At the same time, commercial banks and investors want to invest their capital in economies with strong outlook. If positive news comes to the markets related to a particular region, it will encourage investment. This will increase the demand for the country’s currency and increase its value.
Similarly, a negative news will cause a decrease in investment and demand for the currency. This is why you should keep track of the health of economies.
Market sensitivity, which reacts to the news, is also important in increasing foreign exchange prices. When investors begin to believe that the currency will go one way, they steer their transactions accordingly. So they start to increase or decrease the demand.
Economic data also affect the price movements of currencies. Because these data express how the economy is performing. It also provides information on how the central bank will act.
To give an example in this regard;
Eurozone inflation is under the supervision of the European Central Bank and has a target level of 2%. The ECB uses interest rates, which are its main policy tool, in line with this goal.
If inflation rises above 2%, investors predict that rates will rise. So they start buying Euros. This situation increases the demand for the EUR / USD parity and increases its value.
To have this forecast, you must follow the data. As long as you follow, you can catch lucrative positions.
Another important issue that you should follow up is the statements of credit rating agencies. A country’s credit rating is an independent assessment of the probability of debt repayment.
A country with a high credit rating offers a safer investment area than a low country. In other words, an increase is observed in the currency of a country whose credit rating is upgraded. In the opposite case, it is seen that the currency depreciates.
Forex is evaluated within the scope of many different trading transactions, especially USD or Euro. This system, which provides the opportunity to invest 24 hours a day through the trading platforms and brokers, is being examined and researched by more and more people today.
Depending on the foreign exchange transactions, Forex can provide a high return on trading. The general logic in this system is to earn on the exchange rate difference between currencies. In order to use the system in the best way, it is necessary to follow it continuously and to learn about the market well. For example, when it is thought that the dollar will rise with the follow-up on the market, the dollar is bought on Forex. Later, when a fall is predicted, the dollar is converted to another currency and a good profit can be obtained in this way.
SEE ALSO: Best Forex Brokers