What is Forex? Today I will cover the basics within forex to give you an insight into what it is all about. This page for Forex help is the start of what I have learnt myself, over the last couple of years, studying and trading the markets.
To start with lets cover the absolute basics. This will just be a quick guide to give you forex help, as we progress over time I will get more in depth about absolutely everything.
Forex is short for foreign exchange. It is essentially the transactions between currencies, exactly the same as if you are going on holiday and need to exchange (in my case GBP- Great British Pound) into another currency. The forex market is a way of making these transactions in real time on the computer.
The measure used to work out the difference between each currency is a PIP. This stands for point in percentage and is how we work out various parts of each and every trade.
If you open up and look at a forex chart, there are 3 different types of charts; line, bar and candlestick. Me personally I steer clear of line and bar charts and just go with candlesticks as they are easier to read. I will go into more detail about reading candlesticks in a later post.
What is traded in Forex?
As I mentioned earlier, currencies are traded within Forex.
Currencies are always traded in pairs- so when one currency is strong and the other is weak- this could mean a potential trade due to a high probability of movement.
The main currency traded is the USD and any currency pair that has the USD attached is known as a Major currency pair. Other currencies traded are known as minors or exotics. These include but not restricted to; GBP, EUR, JPY, CAD, NZD, AUD, CHF. A quick and simple game for newbies. Can you work out which currency pair each abbreviation relates to? Feel free to comment below with your answers.
You can place trades for short, medium or long term. Literally you can have a trade running for a couple of seconds, minutes, hours, days, weeks, even months at a time. Depending on the strategy you use or develop.
Forex market and Liquidity
Now the Forex market itself is actually fully electronic, and as such is not like a bank or an institution, it has no physical base. It can be traded from literally ANYWHERE in the world (well as long as you have the Internet of course, so almost anywhere)
As said previously the main currency is the USD, this is due to the USD being the largest economy in the world, and also because the USD is the reserve currency for the world (think drums of oil, purchased in USD).
The markets are open 24 hours a day from (in the case of the UK) Sunday evening, right through to Friday evening. Although it is open all these hours, at certain points there is not much movement due to low liquidity.
Liquidity is basically the amount of buying and selling volume happening at any given time. I will go into the times of day when liquidity is at it is highest during another post so that I can go into more detail.
Why should I trade Forex?
Well for me I am slightly biased as I love the markets (despite currently being on a rotten losing run) I am passionate about and really love trading the markets. Now to start with it will be completely confusing as to what is actually going on, but once you get some knowledge and training behind you to understand WHY the market is moving as it is. It is a beautiful thing.
3 POSITIVE POINTS FOR TRADING FOREX:
-You can trade anywhere in the world, so if you wanted that beach lifestyle or to spend more time with family, it could be ideal.
-Huge potential!!! The forex market has a daily trading volume of 5 trillion, yes folks, 5 TRILLION. Compare this to the New York Stock exchange which comes in at a paltry 22.4 billion a day. If you can just take a small slice of that volume you will be a very happy trader!
-Build new skills as a person. Forex takes you on a journey, mostly to places we as humans generally don’t want to go. You will have to really face up to who you are and become much more self-aware of all that you do, think and feel. They say getting out of your comfort zone is a positive right?
3 NEGATIVE POINTS FOR TRADING FOREX:
– It takes a lot of time and patience to work out what is actually going on and to be consistent. (I am now 3 years into forex and still not fully consistent!) Some people will give up when they realize the work and time you need to put into this. I wanted to make this very clear from the start – it is not a get-rich-quick scheme AT ALL, far from it.
-Huge potential – TO LOSE YOUR MONEY! Just as quickly and easily as you can make money in forex, you can also lose a huge amount if you are not careful! I am currently over £10k in the red after a quite fruitful beginning. I will go into more detail of my own personal story at a later date.
-It is a lonely choice of career. Despite what the Wolf of Wall street and other trading related films or ideals may have you believe. Trading is a very lonely business, you are focused on your laptop majority of the time either analyzing, reviewing, back testing or awaiting a setup. I guess that’s why I am doing this website too. As a way of bringing together more like-minded individuals who are interested in Forex!
Forex help summary
So I hope that this gives you a rough idea of what forex is all about. I will get more in depth with important parts as we go on. If anyone has any suggestions about anything they would like me to get in detail about, please comment below and I will add it to my list of future posts.
For now, I will say thank you for reading, hope to see you again in the future, as we delve further into the world of Forex.