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Forex Basics You Should Know Before Starting To Trade

What Is Forex All About ?

” Forex ” also can be known as ” Spot Forex “, ” FX “ or ” Retail Forex ” basically refer to the foreign exchange market.

It is literally the largest financial market in the world with a total ( average ) volume of about $7 Trillions flowing in and out every day…

If You don’t know how ” HUGE ” a market that has $7 trillions flowing around each day….let me give You an example below by comparing to the commonly known stocks market..

One of the largest stocks exchange is the New York Stock Exchange ( NYSE ) – No Doubt about this !

But it only has volume of  approximately $20 – $25 billions each day…

So if we make a comparison between the Forex & NYSE….Forex is anytime much bigger by at least 6 -7 times..

That is ” How GIGANTIC ” the forex market is….

As such, due to the large volume ( $7 trillions market ) – That explains why forex trading provide retail traders ( like You and me ) with so many benefits as compared to other financial tool…

( read on below as I share more about the benefits later )

Forex Trading ? OK….. But What Do You Actually Trade ?

To put it in the simplest way – You are actually trading ” Money “, ” Currency ” Or ” Cash “

And You trade the currency through a brokerage company or dealer.

In forex trading, You trade currencies in pair like this :

– The American Dollars against the Japanese Yen ( USD/JPY )

OR…

– The British Pounds against the Swiss Franc  ( GBP/CHF )

Because You are not buying anything that is physical ( unlike investing in gold or properties ), it could be rather ” weird or confusing ” to most people who just started with forex trading..

If You are indeed feeling confused by this idea….then just think of the entire forex trading as investing in a country.

For example :

If You think that the British Pounds ( GBP ) is going to be WEAK against the Dollars ( USD )….

( Perhaps because Britain’s economy is not as good as the USA….)

….Then You would be Selling GBP against the USD  ( GBP/USD ) – Which also means Your bias is a Down-Trend for this pair…

Selling GBP Against USD

Selling GBP Against USD

Likewise, if You are Buying ( GBP ) against the USD, then Your bias is Up-Trend for this pair.

In fact, as long as You know :

Which direction to trade

– when to enter and when to exit ( with profits )

then You are a winner for the trade.

Where Do You Trade This So Called ” Exchange Of Currencies ” Then ?

Unlike the stocks market, the forex market has neither a central exchange or physical location.

The entire market is run electronically across all banks ( 24hrs a day ) which is why it is considered the ” Over The Counter ( OTC )  / Interbank ” kind of market…

Previously, if You do not have a Really Deep Pocket  or  Big Fat Bank Account…..then there is no way You can trade in the forex market…

It is only available to the big institutions, major banks or traders with high net worth.

Only until the late 1990s – With the invention of the internet, then it is possible for ” retail traders or little guys like us ” to trade through online brokers.

As long as You have a proven set of profitable trading strategies, a computer ( or laptop ) , a relatively fast internet connection and of course some funds to start a trading account…..You can also start trading forex ( from anywhere You want ) !

Which Are The Currencies Being Traded ?

Every currency literally represents a country. So for any country You can think of, there is probably a currency that belongs to this country and being traded.

However, there are some currencies that are being traded ” more often ” than the others..

Below is a list of the more popular currencies for You to learn more :

Popular Currencies In FX Trading

Popular Currencies In FX Trading

As You can probably see from the ” symbol” column above as well that each currency is always 3 letters in symbol name.

Such as :  JPY, GBP, USD….

Why are these symbols constructed this way ….You might be wondering..

Well…that’s because the first 2 letters actually identify the name of the country

….and the 3rd letter is the name of the country’s currency.

Example :

( JP ) Japanese  (Y) YEN ….that’s why it is ” JPY “

( GB)  Great Britian (P) Pounds…..that’s why ” GBP “

What Timing Are Currencies Being Traded In The Market ?

Forex trading is a 24 hours market because at any time around the world, there would be a financial institution or bank that is in operation.

….At about 7am ( asian time ), Australia would start it’s operation..

….Then at about 3pm ( 8am GMT ), London would come in and start it’s day..

A few hours later at about 8pm ( asian time but USA just turn morning  ), USA would join in and start it’s operation too…

And this pattern continues throughout the week ( except on the weekend where most banks are closed. )

Here’s an illustration of the  Trading ” Time Zone ” for You to understand more :

Forex Trading Hours

Forex Trading Hours

Currencies Distribution In The FX Market ( which is more popular ? )

The US Dollars ( USD ) is the most commonly traded currency commanding market share of more than 84%.

( This means most of the currencies pair would have USD in it…such as EUR/USD, USD/CHF, GBP/USD, USD/CAD……etc )

2nd place would be the EURO ( EUR ) having a market share of about 36%..

Then follow by the Japanese Yen ( YEN ) holding a market share of approximately 16%

Here’s an illustration for You to learn more :

Currency Distribution In Forex Market

Currency Distribution In Forex Market

Alright, so much for this post on the essential Forex Basics for You guys…

Next topic I am sharing is on : ” What are the benefits of Forex Trading “…

Click on the link below to proceed to the next topic :

* What Are The Benefits Of Forex Trading ?

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