Forex 101

Questions & Answers to some of the most common questions.  This Forex FAQ session features the quickest answers regarding Forex tradings. 

Forex Beginner's Session

What is Forex trading?

Forex, Foreign Exchange Market, is an international exchange market where currencies from all around the world are traded. It involves buying and selling different currencies of the world.

Forex market is the largest trade market in the world, yielding $3.3 trillion daily. It is traded all around the world but United States, Japan, United Kindom, and Europes have the most active Forex traders.

How Forex trading works?

Forex is often traded in pairs, for example USD/Euro, USD/JPY, Euro/JPY, GBP/CHF, and CAD/USD. You get 'short' in one currency and you will get 'long' in the other one. Unlike conventional stocks market, Forex trading does not have a centralized trade market.

It is considered as Over-the-Counter or Inter-bank as trades are done between two counterparts via electronic network or telephone connections. Forex works truly as a 24-hour market.

Everyday Forex trade begins when the financial centers in Sydney start their day, and moves around the globe to Tokyo, London, and then New York. Traders can always response to the market regardless of the local time.

How high are the risk in Forex trading?

The risks of losing money in Forex trading is high, but it is controllable via proper education and trading system. Trading system is a must in Forex trading. Charts, graphs, or pivot points are handful to indicate the right time to enter or exit the market. An 'automated system', such as make your easierAs in any trade market, discipline, control of emotion, and money management are the traits needed to be succeed in Forex trading.

Rewards in Forex trading can be very lucrative if traders manage their risk nicely, however the risk of loss is also quite substantial. One benefit to using our recommended brokerage firm is that they will make their best efforts to fill your trade at the price requested.

This means you can have total control over the amount you risk on each trade. But remember, FOREX Trading is speculative and any capital used should be risk capital. In fact, we recommend that you trade on a demo account until you have shown profit for at least three consecutive months before trading real money.

Forex vs traditonal stocks/mutual funds trading: How does they match up?

Forex and conventional stocks are different type of trading. When trading Forex, most trader's objectives are to predict short term movement in the currency exchange values. Most Forex tradings are done in day-trading style where traders will buy and sell in the same day. Different from Forex, stocks and mutual funds trading are more to long term style where trades may last for years or even decades!

What are the major traded currencies?

Major traded currencies are United States dollars, Australian Dollars, Japanese Yens, British Pounds, Swiss Francs, Canadian Dollars, and the Euro Dollars.

Who are the major players in Forex trading?

According to Wall Street Journal Europe, 73% of the trade volume is covered by Deutsche Bank, who covered 17% of the total currency trades; followed by UBS, Citi Group, HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.

What tools do I need to start trading Forex?

It does not need a lot to start trading Forex: a funded Forex account and a computer with Internet connections are basically sufficient for you to start trading foreign currencies. However, proper Forex education and systematic trading tools are highly recommended to minimize your risks in Forex market.

Also, beginner traders are advised to start off their trading in Forex with a demo account first. A demo account is an account set up with 'play' money for the purpose of training and shapen your trading skills. It's free to open a demo account with most of the Forex online broker and it does not risk your real money in the trades. Find free demo account and free FX trading software here.