What is Forex trading?

What is the Forex Trading ?

What’s the concept behind Foreign Exchange (Forex)

Forex is a combination of foreign currency and exchange. Foreign exchange is the practice of converting one currency into another currency for a number of purposes.

Currencies from different jurisdictions are traded and exchanged on Foreign Exchange (Forex) Market, in fact currencies have to be able to be exchanged and traded against each other for many reasons and mostly for trading internationally, traveling and commercial purposes. Fore example if you live somewhere in Europe and you are using EURO as your primary and main currency, and wish to buy something from the United States, you won’t be able to make the purchase and send the funds directly in EURO to an American business, but instead you need to exchange your money for U.S Dollar first at a specific rate and then make the purchase.

Or let’s say if you want to have a trip to Japan, you most probably know that you won’t be able to use your local currency (EURO) there to purchase things or pay for a service in most cases. You are required to exchange your local currency for Japanese Yen, in order to be able to make purchases and pay in Japan, The Foreign Exchange (Forex) Market works just like that.

One of its distinctive aspects is the absence of a central foreign exchange market. Instead, the exchange of currencies takes place electronically through the online platforms, which implies, instead of one centralized firm, all transactions take place across computer networks between dealers all over the world and the other special thing about Forex is that its market is open 24 hours a day, 5 days a week.

This means than when the trading day ends in a jurisdiction, The Forex Market is not closed for trading, because the next market is about to open when one closes as there are Major Financial centers across the word including almost all the time zones.

How to enter the Forex Trading world

If you are interested in Trading Forex, I have to say that there are some steps that you need to go through before you can trade on a real market with real consequences on your funds and capital.

Here are some of them explained:

1- Educate yourself about Forex

Foreign exchange trading is a project of your own and demands expert knowledge, although it’s not tough. The leveraging ratio of foreign trade, for example, is larger than for stocks, and the causes for the movements of currency prices differ from those in stock markets. For novices there are various online courses that explain the ins and outs of forex business.

2- Open a demo trading account first

It is highly recommended that if you are a novice to forex trading, and have no clue about the Forex markets movements, to open a demo account first which has the exact same features and functionality of a real account, but using unreal money for the purpose of training instead of real money, to train your forex skills, based on what you have earlier learned through the lessons you have taken and also through trial-and-error method, to become dominant both on Forex market and the trading platform that you are using for that matter. Because Forex and similar markets can be highly volatile and unpredictable sometimes, and you may lose a significant portion of your investment, if not all, in a few trades if you are not experienced enough.

3- Never lose trace of your trades and numbers (Risk management)

Having a risk management strategy in your Forex Trading helps you to develop a set of standards and methods to ensure that a forex deal can have a controllable negative impact. An effective approach involves adequate preparation from the start, because before you really begin trading you should have a risk management plan in place.