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Today, most of us have heard of the Forex market. This is due to a huge amount of promotion by dealing centers that tell fascinatingly that Forex had long been a major source of income for many people around the world, granting them full financial independence and enabling not only to work productively, but also have a good rest. Naturally, the promise of gravy train makes more people interested in what Forex is and how they can learn its basics to quickly join the ranks of the lucky ones happily smiling from billboards on the background of expensive foreign resorts and various exotic corners of our planet.
Before diving into the world of financial flows and learning what Forex is, you should be warned that despite the multibillion daily cash flows, only a disciplined trader is able to make money in such environment, provided he or she had learned the basics of trading and developed an individual strategy. At the initial stage, it is highly desirable to take your time and not treat this work as a game of chance; otherwise, an attempt to find out what Forex market is will lead to very unfortunate consequences.
Once we are done with the intimidating introduction, we can move on to learning the basics. At this stage, all who have not been frightened away by difficulties coming our way should learn the following: there are lots of successful traders around the world, and, surprisingly, many of them openly share their experience, as there is houseroom for everybody on Forex; it provides plenty of options for earning every day.
Now we can proceed to learning what Forex is; if you take a look at the word’s etymology, you will find out that it means foreign exchange market. To be more precise, a market in which foreign exchange transactions take place every second; the purpose of these transactions is to provide trade with necessary tools on a global scale. To put it bluntly, one can imagine that Forex is a grand exchanger, where people come to transfer their monetary units of one state into their equivalent, which is used in everyday life of another state.
The main actors who have a decisive influence on the formation of prices are central banks of all major countries of the world. They are the so-called "big fishes", controlling the entire international exchange market. We must understand that the primary motivation of banks is not greed, as they regulate countries’ rate using economic tools in order to ensure their economic prosperity and stability.
It is important that a person reading these lines realized the purpose of the Forex market, what it is and how one can earn with its help. Indeed, the existence of Forex provides a harmonious work of the entire world economy instead of serving individual interests. However, traders who monitor the central banks swinging the rate using elementary laws based on the search for a harmonious supply/demand ratio are able to enter the cash flow and use its power to their own profit.
How does this happen? For example, someone decided to visit Europe; so, before the trip, one needs to stock up funds to pay for goods and services in a particular European country. Such person will address money changers and change rubles for euro. Forex market is this very money changer but on a global scale, performing trading operations with currency pairs. In this case, when exchanging dollar for euro, this is an operation with the currency pair EUR/USD (euro-dollar).
Once you get interested in Forex, you see lots of pictures where traders, i.e. people who earn via Forex exchange, sit in front of screens displaying different graphics. They display the exchange rate of one currency in relation to another. In fact, it is the currency pairs that are traded in the market.
Does the knowledge of what Forex is help you earn? Technically, the answer to this question includes doing the following:
Following these actions, a novice trader can get acquainted with the charts of currency rates, which can be used for analysis and opening/closing of trading positions 24 hours a day, 5 days a week. On Forex, Saturday and Sunday are considered weekends; trade resumes on Monday.
Thus, turning on a computer (laptop, mobile device) and launching the trading terminal, a trader can see certain current rate, receive signals on a schedule according to own Forex strategy, read various analytical reviews, receive signals from other traders and effect deals, both for buying and selling using the chosen currency pair.
In order to understand what Forex is and how it works, we shall use an example of euro/dollar pair (EUR/USD). This is the simplest and the most common currency pair. Therefore, once you effect a deal and predict, for example, the euro growth in relation to the dollar, it will be easy to make a profit if your prediction is true.
In case of an accurate prediction, the price continues to rise and the trader who bought the currency at a certain cost sells it at a different, higher price and gets the money invested in the deal plus profit to his or her trading account, from which the money can always be withdrawn to e-wallet, bank account or wherever else.
Continuing with the EUR/USD pair, one should master the basic terms, without which the understanding of what Forex is would be impossible. In this ratio, EUR is a base currency, whereas USD is a quote currency. A trader buys or sells the base currency, and the quote currency gets calculated. To make it clearer, we can turn to the example of a simple exchange office. For example, someone visits exchanger in order to sell or buy dollars for Russian rubles. This is how a transaction on the currency pair USD/RUR is done. That is, the specific operation takes place with the base currency (USD), and the ruble (RUR) is calculated as a quote currency.
Naturally, there are particular prices for buying and selling, and they may differ from each other. For example, in the exchanger you can buy dollars at 36 rubles and sell them at 35 rubles. In this case 36 rubles is the Ask price, and 35 rubles is the Bid price, respectively. The difference between these figures is called Spread, which is, in fact, the commission due to which the currency exchange operates.
Similarly, a trader can replenish its account after opening it at broker’s (dealing center), who is the mediator between the trader and Forex. This scheme makes people often ask the question: "What is the Forex market?". In fact, this is not entirely correct, as Forex is the OTC market, consisting of a network of servers (computers), between which trading takes place.
Any trader sitting in front of a computer may enter into trade deal, and it will be accepted; if he or she correctly predicts the exchange rate, trading on Forex can result into a profit, the amount of which depends on the size of deposit and the amount of transaction. Naturally, in order to continuously receive profit you simply need to learn how to predict the price movement. In reality, it is not that easy, but having spent some time on training and practice, you can strike bargains in the black with high probability and in most cases, and eventually become rich and financially independent person.
Once you get an idea of what Forex is and how traders make profit, you should become familiar with some of the concepts that complement the mastering of foreign exchange market basics and help explore the secrets of trading currencies with more confidence.
Setting about trading, trader often sees different ads about Forex services. What are they? In fact, these are the conditions offered by a broker (dealing center) for trader’s opportunity to trade on the market. Therefore, it is important to carefully study them and select the most comfortable trading options.
Pay attention to the following:
When beginning to trade, by no means should one ignore the assistance in the form of indicators, which are used by all traders without exception. Forex Indicators are special analytical tools provided by a trading platform. One can use them to determine the mood on the market, which greatly simplifies the prediction of prices.
Indicators can show different technical components, for example, change in the average price, or even psychological components, showing overbought and oversold zones and the like. All this allows trader to be more confident and gain profit from his or her actions on Forex.
Before finding out what Forex signals are, one needs to learn an important difference about them. The signals can be generated either by proven indicators or a broker whose staff includes experts performing analytics of changes in the foreign currency quotes. In the latter case, Forex signals can be paid and free. Dealing center clients often can subscribe to these signals, or even order the service by receiving such signals via SMS.
However, disputes about the usefulness of these signals do not cease until today. Either way, one should not blindly follow such orientations; instead, learning to use them as a confirmation of ones strategy and further work on the mistakes in case of a negative result will be very useful.
When being introduced to Forex, you can often hear about the importance of developing a trading strategy, which must be drawn up and checked by trader himself. What is Forex Trading Strategy? It is a set of tools and a specific sequence of actions, allowing the trader to minimize losses and increase profits.
In these cases, the main thing is that, for its market strategy, trader includes the tools (indicators, signals, and so forth), whose operation is clear to him or her. This creates an algorithm that allows more efficient decision-making, minimizing the influence of emotions.
To sum it up, we can say one thing: time spent on the study of Forex would be definitely not wasted. You can and should work and earn money with Forex, however, you should first make an effort to obtain some knowledge, familiarize yourself with the trading tools, software and indicators, and develop an effective trading strategy.