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What is Forex and how does trading work in this market?

Many people know about Forex, mostly from advertising, but not everyone understands what it is. 


"Earn money by playing Forex!", "Profit up to 100% per day in the foreign exchange market!", "Let's teach you how to work in the Forex market!" - similar ads are often shown on the Internet. But is it really possible to make money on Forex and what is needed for this?



Forex is an international market where foreign currencies are traded. Unlike stock exchanges, forex is an online marketplace used by large banks, investment funds, and companies. and private individuals. The daily turnover of the financial market exceeds $5 trillion, which is more than the total turnover of all national stock markets.


The Forex market involves large and central banks, investment and pension funds, large companies and private investors with huge capital. The volume of transactions at this level usually starts from one million dollars.


There is no real buying or selling of currencies in the Forex market. Here, deals are made-bets on changes in exchange rates based on how they rise or fall. This market was created by specialized forex broker companies.


You cannot buy currency through a forex broker. If you need dollars, euros, pesos or yuan, they can be exchanged at a bank or through a broker on a currency exchange.


Forex brokers offer ordinary people to try their hand at forex trading. The bottom line is that a trader tries to predict the change in the exchange rate of one currency against another and makes a deal with a forex broker. If the forecast is correct, he gets the profit that the broker pays. In case of an error, he loses part of the funds that is debited from his account.


To start trading, as a rule, you do not need large expenses or special equipment. Internet access and a trading terminal, a program installed on a computer, are sufficient. Recently, mobile applications for entering the Forex market have appeared. But all this does not make trading simple and easy: on the contrary, the risks of losses are very high here.



What is the essence of Forex


Forex trading is carried out using currency pairs, for example, euro-dollar, dollar-yen, euro-pound and others. The bottom line is that they buy one currency in a pair expecting its price to rise compared to the other. By selling the currency at the right moment, the trader makes a profit on the price difference — this is his income.


When the trader thinks that he has earned enough, and the asset price may change in the other direction, he closes the deal. Also, a deal can be closed with a bad investment if the trader starts losing money.


In addition to currencies, you can buy raw materials or shares of companies on the market, with the expectation that their price will be higher or lower. At the same time, it is not necessary to actually have stocks or goods. Exchange-traded instruments allow Also, "playing for short" is a fairly simple and effective mechanism based on lending against the obligation of further repayment. It is not necessary for a trader to understand the details of such a transaction - just one mouse click or touch on the phone screen is enough.


The main thing is to understand which assets will grow and which ones will fall. To do this, the trader analyzes the market, monitors financial news and the behavior of other investors. Some people trust their gut and make deals randomly, but in this case the chances of staying in the market for a long time are greatly reduced.


There are several technical tools available for simple and secure trading. For example, you can set up automatic closing of a trade under unfavorable conditions or borrow the strategy of an experienced trader, copying his trades automatically.



The main bidders


  • ◆ Central banks


The main goal of central banks in online trading is currency regulation in the foreign market, especially the prevention of sharp fluctuations in national currencies. This is necessary in order to avoid a new wave of economic crisis and maintain a balance between exports and imports. The decisions and public words of central bank representatives have a strong impact on the Forex market.


In the USA, the main regulator is the Federal Reserve System, in Europe — the European Central Bank, in the UK — the Bank of England, and in Japan — the Bank of Japan.


  • ◆ Commercial banks


They carry out a large volume of currency transactions. Other market participants conduct exchange and deposit-lending operations through accounts opened with these banks.


The largest influence on the global foreign exchange market is exerted by large international banks, whose daily volume reaches billions of dollars. Among them are Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank and Standard Chartered Bank.


  • ◆ Companies engaged in foreign trade operations


Companies involved in international trade are divided into importers and exporters. Importers consistently generate demand for foreign currency, while exporters, on the contrary, offer it for sale, as well as place or attract free foreign currency funds as short-term deposits.


  • ◆ Companies investing abroad


These include investment funds, monetary funds, and companies from other countries such as Xerox, Nestle, GE (General Electric), BP (British Petroleum), and others.


  • ◆ Currency exchanges


There are currency exchanges in key countries such as the United States, Great Britain, Australia, and Japan. Their main task is to conduct currency exchange for legal entities and generate an up-to-date exchange rate for each currency pair. After the quotation appears on the stock exchange, it is transferred to the liquidity providers, who, in turn, send it to the brokerage companies with which the transactions are concluded. This is how the new price arrives on the online platforms of private traders connected to the market through a broker.


  • ◆ Brokerage companies


Brokers act as a bridge between the exchange and private traders. Their task is to bring together the buyer and seller of foreign currency, as well as execute the transaction at the current market price. All actions take place online through trading platforms. The most famous among retail investors are the MetaTrader 4 and the MetaTrader 5


Brokers charge a commission for their services in the form of a spread, the difference between the purchase and sale price of a currency.


  • ◆ Private individuals


You can act as both a buyer and a seller. The actual presence of currency on hand is not required - you just participate in the process of changing the prices of currency pairs. This process is the basis of modern online trading.



How to make money on Forex


It is important to understand: This is not a get-rich-quick scheme. I will tell you how to approach the matter competently and consciously.


Market analysis refers to the application of technical and fundamental analysis. Earning money on Forex is the result of careful market research and opening positions at the right time.


Technical analysis is based on the study of charts of movement of currency pairs. It involves working with different indicators that show price dynamics. Fundamental analysis takes at outside things - economic, political, and sometimes natural phenomena that affect the pair's trade rate.


To trade well, you must mix technical and fundamental analysis.


But, it’s key to have a clear look at stuff. You don't need to wait for large gains in the first days or even months. To earn money, you need to learn how to do it, train and try strategies in practice. And the most important thing is to be able to manage emotions during trading.


How to start trading on Forex


Now that you know how the Forex market works, the most important question remains: where to start trading. You can enter the world of trading in just a few steps.:


  • ◉ Choose a reliable broker
  • ◉ Open a trading account with him and make a minimum deposit.
  • ◉ Download the trading platform
  • ◉ Make your first trade!


Many people think that $100 is too small an amount, but it is quite enough to start trading on Forex! Moreover, it is possible to start earning even without your own investments.


Over time, with the right strategy and good risk management, trading can become an additional source of income for you.

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If you are a beginner, start by trading one currency pair before opening positions on several. Each currency pair has its own characteristics, which means that the approach to its trading will be different.


One of the best currency pairs for beginners is EUR/USD. This is due to its high liquidity, narrow spreads, and this is one of the main reasons why it is the most traded on the market.


It is important to note that the lack of good training is the reason why most traders fail without ever understanding how the Forex market really works.



Forex: Final thoughts from experts


Forex is a market where currencies of different countries are traded with each other. It is the largest and most liquid financial market in the world. People earn money in Forex by opening deals for an increase or decreaseusing one currency relative to another and profiting from the exchange rate difference.


Trading on the foreign exchange market is available to anyone with a computer and Internet access. Anyone can open an account with a broker and start making money on the difference in quotes.


Successful trading needs a bunch of work and planned learning. Successful traders have in-depth knowledge of financial markets, watch economic and political happenings that change exchange rates, and look into different trading plans and ways to manage risks.


Forex trading is not jus͏t a game of luck. This is an area where professional skills and continuous development are very important. Without the necessary trainingOnline trading can easily become a gambling game and end up losing money. That's why, before you start trading with real funds, you should get trained and practice on a demo account where your money is not at risk.


This approach will significantly increase the chances of successful and stable trading.