Invest in FOREX - How To

Learn more about what FOREX means, what is, how it works, how can you invest in FOREX and make money.

What is FOREX trading?

The foreign exchange market – also known as forex or FX-is the world’s most traded market. Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, trading, or tourism. In short words, Forex trading is the buying and selling of global currencies.

Currencies are traded in the foreign exchange market, a global marketplace that’s open 24 hours a day Monday through Friday. All forex trading is conducted over the counter (OTC), meaning there’s no physical exchange (as there is for stocks) and a global network of banks and other financial institutions oversee the market (instead of a central exchange, like the New York Stock Exchange).

While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken with the aim of earning a profit. The amount of currency converted every day can make price movements of some currencies extremely volatile.

It is this volatility that can make forex so attractive to traders: bringing about a greater chance of high profits, while also increasing the risk.

How do currency markets work and how currencies are traded?

The forex market is run by a global network of banks, spread across four major forex trading centres in different time zones: London, New York, Sydney and Tokyo. Because there is no central location, you can trade forex 24 hours a day.

All currencies are assigned a three-letter code much like a stock’s ticker symbol. While there are more than 170 currencies worldwide, the U.S. dollar is involved in a vast majority of forex trading, so it’s especially helpful to know its code: USD. The second most popular currency in the forex market is the euro, the currency accepted in 19 countries in the European Union (code: EUR).

Major currency pairs

EUR/USD
USD/JPY

GBP/USD
AUD/USD

USD/CAD
USD/CHF

Types of Forex Market

Spot forex market: the physical exchange of a currency pair, which takes place at the exact point the trade is settled – ie ‘on the spot’ – or within a short period of time
The forward market: instead of executing a trade now, forex traders can also enter into a binding (private) contract with another trader and lock in an exchange rate for an agreed upon amount of currency on a future date.
Future forex market: a contract is agreed to buy or sell a set amount of a given currency at a set price and date in the future. Unlike forwards, a futures contract is legally binding

Risks of Forex Trading

Small market movements can have a big impact. Most FX trading products are highly leveraged. You only pay a fraction of the value of your trade up-front, but you are still responsible for the full amount of the trade.
Exchange rates are very volatile. They tend to move around a lot even within very short periods of time. There are significant investment risks as currency fluctuations may move against you, causing you to lose money.
Currency markets are extremely difficult to predict. Many difference factors affect exchange rates
Limited protection from risk management systems. Stop loss orders will only cap your losses. You may also pay a premium price to guarantee your stop loss order.
Forex scams and fraud. Offers and advertisements that sound too good to be true probably are. Read what the US Commodity Futures Trading Commission has to say about foreign currency trading fraud.
Forex provider risks. If your FX provider became insolvent, you may not get your money back.
Trading delays can severely affect results. You may not be able to make trades when you’d like to, because of a lack of liquidity in the market, execution risk, or computer system problems.

Charts Used in Forex Trading

Almost all Forex brokers offer free charts to their clients that are included in their trading package. And when traders download MetaTrader 4, MetaTrader 5, or cTrader (trading programs), the charts will automatically be available for them. Apart from brokers and their trading software, there are also third-party charting programs like TradingView that provide currency price charts for free.

Line chart – A line chart is the most basic form to chart the currency market. Perhaps one of the simplest Forex chart types, line charts’ main advantage is just that: their simplicity.
Bar chart – A bar chart is the closest form to the most popular chart in the retail trading word: the candlestick chart. Unlike the line chart, a bar chart shows all the price action within a period.
Candlestick chart – Naturally, candlestick charts use candlesticks. Similar to bar charts, candlestick charts: show the entire price action in a period: the high, low, open and close.

Forex terms to know

Currency pair: all forex trades involve a currency pair. In addition to the majors, there also are less common trades (like exotics, which are currencies of developing countries).
Pip: short for percentage in points, a pip refers to the smallest possible price change within a currency pair. Because forex prices are quoted out to at least four decimal places, a pip is equal to 0.0001.
Bid-ask spread: as with other assets (like stocks), exchange rates are determined by the maximum amount that buyers are willing to pay for a currency (the bid) and the minimum amount that sellers require to sell (the ask). The difference between these two amounts, and the value trades ultimately will get executed at, is the bid-ask spread.
Margin: trading with leverage isn’t free, however. Traders must put down some money upfront as a deposit—or what’s known as margin.

How to Get Started with Forex Trading

Forex trading is a simple concept; you aim to make money by buying a currency and selling it when the price has risen or by selling a currency and buying it back when the price has declined.

Before you start trading in the Forex market, you need to choose a trustworthy broker. Such a company will help you to execute transactions and will offer additional financial services. Working with a reputable broker can help you to stay protected and avoid losing money in the future.

Making money by trading currencies is all about predicting the movement of the world economy accurately. To become a profitable trader, you must be skillful in understanding global economic trends, converting, buying, and selling currencies on favorable terms.

Rules before starting to trade Forex

Open a Demo Account and start to practice: Before you start working with real money, you should spend several weeks practicing on a demo account.
Create a Successful Strategy It is much more reliable to create your own trading strategy while training on the demo account.
Start trading with Small Investments don't go high at begin. Small amounts should be enough for you to start trading.