Introduction to Forex Trading
History Of The Forex Market
- Instead of boring you with the bloated history of foreign exchange which offers you nothing in terms of how to trade, I’ll skip to retail trading which is what you are doing.
- Before the late 90’s, there was no retail trading. You needed several million in an account to trade forex, and even then – you were a small client in a big sea. But due to leverage and an expansion of the market – it became available
- via brokers who allowed retail participants like you to trade the market.
What is Forex Trading?
- The forex trading market allows you to buy and sell the currency of any country against another. The most popular currencies amongst forex traders are the US dollar (USD), the Euro (EUR), the Great British Pound (GBP) and the Japanese Yen
- (JPY). The USD is the most traded instrument, while the Euro is the 2nd. Thus the EUR/USD (Euro vs. the USD) is the most traded pair on the planet.
- Do you think the Euro is going to rise vs. the USD, then you would buy it vs. the USD. Think its going to fall in value – then you would sell it vs. the USD. This is the basic mechanic of trading currencies.
- Advantages and Basic Features of the Forex Market:
- Trade Anywhere in the World: All trading is done online. Thus you can trade from any laptop as long as you have an internet connection. There is no centralized trading exchange and all trades are carried out electronically and likely commission free.
- Higher Liquidity: The market is highly liquid (over $4 Trillion a day) which ensures that an investor can buy and sell at virtually any point of time with lower trading costs than stocks.
- Profit in Rising or Falling Markets: Unlike stocks which you generally have to buy, you can profit in rising or falling markets.
- Easy to Begin: You can start with as little as $300 since favorable leverage is offered.
- Strong Volatility: Because of the high liquidity and constant need for global currency trading, the market offers several high probability opportunities a day. In the next chapter, I will discuss how the Forex market is traded, and what are the basic terms to understand.
- Keep watching for Chapter Two!