What is Forex Trading & how does it work?

The term Forex stands for foreign exchange and Forex Trading is the practice of trading one currency for another. In fact, when you trade Forex you are buying and selling currency in pairs hoping to profit from potential increases or decreases of the price of these pairs.

How to trade FX?

To start trading, some things need to be taken into consideration:

1) To access the FX market, you will need to select a broker to act as your intermediary and provide you with an account where you can make a deposit and start trading
2) Brokers will offer different accounts for different needs so make sure to select the correct account type
3) Once the account is created, you will get access to the platform the broker is offering which will most likely be MT4 or MT5
4) Once you have downloaded the software you can login and start trading. The instruments available to trade with will depend on the brokers offerings. It is best to go with a broker that has 50+ currencies to trade.
5) Consider putting together a timeframe in which you wish to trade and build a trading strategy fit to the current market conditions

When starting to trade as a beginner, it might all seem easy and exciting, but it is important to educate yourself before you indulge and wonder why you are not making any profit.

It is said that the differentiating factor between success and failure in online Forex trading is having a strong trading strategy.

Who can trade Forex?

At this point, with the extreme advancement of technology, anyone with a computer and access to the internet can start trading Forex. There has been a rapid growth in participation and enthusiasm from beginner traders due to the increased accessibility. Whilst accessibility has been improved, the actual dynamics of the market and the trading itself can prove to be quite complex so it is important for all junior traders to familiarise themselves with some basics of trading to build a foundation before they begin.

Why can we trade currencies?

Prior to the internet, it was very difficult for individual investors to trade currency. Now depending on the platform you use, it can be done whilst you are sleeping.  Back then, it required a lot of capital to trade currencies whereas now you are able to trade either through banks or brokers/dealers with a small account balance.

Currencies you can trade

Forex majors are the currency pairs with the highest trading volume which include:

  • EUR/USD
  • GBP/USD
  • USD/JPY
  • USD/CHF

Minor pairs are pairs made up of major currencies excluding the US dollar for example:

  • EUR/GBP
  • GBP/JPY
  • CHF/GBP