If you’re new to the Forex market, trying to understand how Forex works and how to trade with it can be incredibly difficult. We aren’t talking about the stock market here. You can’t just focus on learning a single company or group of companies; winning with Forex requires you to understand the entire global economy. Talk about complex!
Some of you will probably throw your hat in the ring at this point. Why bother? Well, how about the fact that Forex has a market cap of over $5 trillion per day? There’s serious money-making opportunity trapped in the Forex market, but there’s also plenty of risk. So, what is Forex, how does it work, and why should you care?
Let’s talk about it.
What is Forex?
Exchanging currency is a vital component of the world economy. Let’s say that you want to buy some nice wine from France. After all, la vie est trop courte pour boire du mauvais vin
“Life is too short to drink bad wine.” You would need to purchase that wine in Euros. At least, someone, at some time, had to purchase that wine in Euros. So, someone had to convert rand (ZAR) to euros (EUR). That’s the Forex market. Trillions of USD flow through Forex every single day, and it’s the largest liquid asset market on the planet — beating the pants off of the New York and London stock exchanges.
Since tourism, commerce, trade, etc. all rely heavily on foreign exchange, the Forex market is a 24/7 market. It’s always open somewhere. And, since it takes place globally, there isn’t a central exchange, like there is for the US stock market. Instead, trades are made over-the-counter (OTC) through digital trading platforms. This means anyone, anywhere can jump into the forex market and start making trades.
Speaking of trades, the Forex market pairs currencies against each other. So, you could make an exchange of USD/EUR in the hopes that the USD rises and EUR falls. Things can get a little more complex than that, and many large commerce traders actually hedge bets on the market by dumping tons of liquid capital, but we won’t get too complex in this post.
Let’s talk a little bit more about how Forex trading works for the average investor — a.k.a, trading on speculation.
How to Trade Forex
You are probably wondering how to trade Forex and why its important. People trade Forex for a variety of reasons. They may want to hedge against a massive liquid market and inflation. They may want to bet against future inflation over the long-term. But most people invest for one reason — to make quick cash. Forex is a fast-paced game. There are three markets.
- Spot market
- Futures market
- Forwards market
Most of the trading takes place in the spot market, though many successful Forex traders operate heavily in the futures and forwards markets. Trading Forex is all about trying to determine the direction a currency will move based on geopolitical factors, economic factors, and (as always) psychological factors. You have to play the market AND play the traders.
Let’s look at an example trade.
Let’s say that I believed that the Japanese Yen is going to gain value against the Rand. So, I would make a ZAR/JPY trade. Let’s say that it’s trading at 7.8331. The buy price is 7.8330, and the sell price is 7.8332. That .0002 difference is called two “pips” — which is a way to measure the difference between currencies. So, let’s say I buy a boatload of JPY and the Rand loses some strength. Suddenly, my JPY has gone up in value. So, when I trade it back in, I’ve earned some cold, hard cash. Simple enough, right?
How to Make Serious Bank on the Forex Market
The example above is an extremely simple example. If you want to actually learn the ins-and-outs of the Forex market, check out my in-depth trading course
, where I’ll go over some unique Forex trading strategies, and teach you how to make money trading currencies. Sure! You could run back to the stock market exchange. But if you’re ready to step it up to the big leagues, I’ll help you find the right mitt and bat. Learning how to trade can be super easy! Contact me
to learn more.
DISCLAIMER & NOTICE
The information is for educational purposes only and not financial- and or investment advice. Trading can be very risky. Never trade with money you cannot afford to lose. Always seek the advice of our preferred regulated FSCA Broker and or a regulated FSCA Financial Advisor.