LESSON 1: INTRODUCTION TO FOREX... It all begins here.

Objectives:

If you take this lesson to the end, you will:

  1. Understand forex, forex market, and Forex Trading.

  2. Know what is traded in forex.

  3. Know why you should trade forex.

  4. Know who participates in the forex market.

What Is Forex?

Forex is the short term for "foreign exchange."

Forex Market

The forex market is a global marketplace where Banks, Institutions, and Individuals speculate on the exchange rate between currencies. The Currencies traded in Forex are divided into Major and Minor Currencies. The Major currencies are the frequently traded currencies.

Which are: USD, EUR, JPY, GBP, CHF, CAD, NZD and AUD. These are the most liquid and sexy currencies. All other currencies are referred to as minor currencies.

The forex market is the largest financial market in the world. However, there are other financial markets. For instance, the stock Market.

Forex Trading

Forex Trading is the simultaneous buying of one currency and the selling of another currency through a broker. These currencies are traded in pairs.

That is, if you buy EUR/USD, it means that you are buying the Base currency and simultaneously selling the quote currency.

As a forex trader, you are speculating on whether one currency will rise or fall in price against the other currency in the pair.

Understanding Currency Pairs

In Forex Trading, currencies are traded in pairs. And these pairs consist of a Base Currency and a Quote Currency as mentioned earlier.

The Base Currency is the first currency in any currency pair while the second currency in any currency pair is referred to as the Quote Currency.

Examples:

Currency Pairs

Base Currencies

Quote Currencies

USD/CHF

USD

CHF

NZD/JPY

NZD

JPY

EUR/GBP

EUR

GBP

GBP/JPY

GBP

JPY

USD/CAD

USD

CAD

 

Classification of Currency Pairs

Currency Pairs are classified into Major currency pairs, Minor currency pairs, and Exotic currency Pairs.

  • Major Pairs: Include the most traded and most liquid currencies like EUR/USD, USD/JPY, and GBP/USD.

  • Minor Pairs: Exclude the US dollar but still involve major currencies (e.g., EUR/GBP).

  • Exotic Pairs: Combine a major currency with a currency from a smaller or emerging economy (e.g., USD/TRY).

NOTE: The objective of forex trading is to exchange one currency for another in expectation that the price will change.

  • When buying, the exchange rate tells you the amount of the quote currency to pay in order to buy one unit of the Base currency.

  • When selling, the exchange rate tells you the amount of the Quote currency you get for selling one unit of the Base Currency.

Example:

If USD/CHF is rated 1.6350, it means one USD is worth CHF1.6350

Why Trade Forex?

  • High Liquidity: The Forex market boasts unparalleled liquidity, ensuring that you can buy and sell currencies at any time with minimal price slippage.

  • Accessibility: The Forex market is open 24 hours a day, five days a week, allowing traders to adapt to their preferred timeframes.

  • Leverage: Forex brokers offer leverage, allowing traders to control larger positions with a smaller amount of capital. However, leverage also increases risk.

Key Participants in the Forex Market

Understanding the various participants in the world’s largest financial market is crucial. The key participants are:

  • Big Banks: Act as market makers, facilitating currency transactions.

  • Financial Institutions: Trade currencies for hedging and speculative purposes.

  • Corporations: Engage in Forex to manage international business risk.

  • Retail Traders: Individuals like you, participating through broker



Feel free to ask questions in the comment, or send us a mail at morepipz@gmail.com

Comments

Post a Comment

Popular posts from this blog

LESSON 2: KEY FOREX TERMINOLOGIES

Image
Objectives: If you take this lesson to the end, you will: 1. Understand all the Basic Forex Terminologies. 2. Be able to utilize them. Exchange Rate/Price This is the amount of the quote currency needed for you to get one unit of the base currency. Pip A pip is the smallest unit of price for any currency pair. It is the 4 th digit after the decimal in a price. A "pip" stands for "percentage in point" or "price interest point." It is a standardized unit of measurement that represents the smallest price movement in the exchange rate of a currency pair. Most currency pairs are quoted to four or five decimal places, and the pip is typically the last decimal place in the quote. For example, if the EUR/USD currency pair moves from 1.1200 to 1.1201, it has moved one pip. Pipette The pipette is one-tenth of a pip. It is the 5 th digit after the decimal points. Lot Size Forex is traded in specific amounts called lots, which is the number of currency units you wi...
Read more

LESSON 7: CHOOSING A FOREX BROKER

Objectives: If you take this lesson to the end, you will: Know who a Forex Broker is. Know the types of Forex Brokers. Know the Functions of a Forex Broker. Know what to consider when choosing a Broker.   Forex Broker A Forex broker is a financial intermediary that facilitates the buying and selling of currencies in the foreign exchange (Forex) market. Forex brokers provide traders (individuals or institutions) with access to the currency markets, enabling them to execute trades. In simple terms, a Forex broker acts as a bridge between retail traders and the global currency markets. Key Functions of a Forex Broker: Market Access: Forex brokers provide traders with a platform (often a software platform or an online portal) where they can buy and sell different currencies. They offer access to the vast global Forex market, where currency pairs such as EUR/USD, GBP/JPY, or USD/JPY are traded. Leverage: Brokers often provide leverage, allowing traders to control a larger positio...
Read more