Greetings Friends,
If you've heard of Forex, but never experienced it before, then you are in for the ride of your life!
Forex is unique in the trading realm. It is not like trading stocks or anything else.
Compared to most markets, Forex is gigantic! In fact, Forex is bigger than all the other markets combined! There is nothing else quite as massive.
Forex also has much higher liquidity and trading volume. As much as 3 trillion dollars is traded PER DAY in Forex!
Executing orders is blazing fast compared to other markets. An order can be executed in a matter of seconds, with virtually no delay. In that sense, it is a Scalper's dream!
Forex has much bigger daily swings than stocks, too. In the stock market, an average daily gain/loss might be around, say, 3-4%. That would probably be on the higher side of the spectrum.
With Forex, that kind of change can occur in seconds. It depends on a lot of factors (which we'll discuss later). It is absolutely, 100% possible to lose everything in Forex within a matter of minutes.
On the other hand, it's entirely possible to double or even triple your account with one trade!
With the stock market, the average annual gain is around 11% for GOOD investors.
In Forex, GOOD investors can average gains around 25% per MONTH.
Some would immediately assume that Forex is much more risky than trading in other kinds of markets. They are absolutely correct. Even though Forex experiences wild swings at times, it is important to note that we have total control over our losses, profits, etc. with each and every trade.
For example, one can set up points where the trade will automatically end, whether it be X amount of dollars in profit or X amount of dollars in loss. These settings can be updated on the fly, at any time during the trade.
Hopefully I'm painting a good picture on just how wild (and profitable) Forex can be.
But you may still be wondering: What exactly IS Forex? What do you trade?
Forex is a currency exchange. It is composed of lots and lots of currency pairs, such as the most famous, the "EUR/USD".
The EUR/USD is the most traded currency out there.
EUR/USD represents the Euro in relationship to the US Dollar.
The Euro will be trading at a certain price, let's just say 1.25000. This means that every 1.25 Euros is worth 1 US Dollar. This is simply the current conversion rate.
Perhaps you have traveled to a foreign country and you had to exchange your native currency for a different type of currency. If so, then you are familiar with this type of scenario.
It is important to understand that the conversion rate changes CONSTANTLY. I'm not talking about changing a little bit each day. Oh no. The price is constantly in flux - it rarely ever stops at one price. If it does, it quickly starts moving again.
What causes the price to move?
This is determined by the ratio of buyers to sellers. If the bulls outweigh the bears, then the price will rise. If the bears outweigh the bulls, then the price will tumble.
Naturally, this ratio changes constantly as people enter and exit trades at mach 9.
This constant ratio flux is what moves the price around so vigorously.
The real question becomes, "What causes buyers and sellers to make their respective decisions?"
Lots of things can influence this!
Some people trade purely based on their interpretation of the currency chart. They analyze currency charts and use special indicators, such as moving averages, to try to ascertain and predict the currency pairs next move. This is known as "Technical Analysis".
Others look at economic factors related to the specific countries involved. They pay attention to world news events, also. They mainly try to predict the currency pairs next move based on what they read and learn in the media. This is known as, "Fundamental Analysis".
You make money in Forex by predicting correctly whether a currency pair will rise or fall in price.
If you believe it will rise in price, then you BUY so many "contracts" of the currency (think of a contract as a ''share"). If the price indeed rises, then you make money by closing the trade out. This is where you perform a "virtual swap" - you sell them back all your contracts at the new higher price, and you pocket the difference as pure profit!
It is similar to buying a stock share.
If you buy a stock @ $5 per share, than any advancement of the stock past $5 per share is profit (minus brokerage fees, of course).
If the stock climbs to $8 per share, then you just made ($3 * # of shares you bought) - (fees).
Forex is the exact same, except you buy contracts instead of shares. You also use leverage, which amplifies your buying power substantially (more on that later). The principles are the exact same.
SELLING in Forex is identical to "Shorting" in Stocks, too. You "SELL" X amount of contracts, with the intention of buying them back at a later date (hopefully at a lower price!).
This is just a crash-course in Forex.
There will be much, much more in the future. This was simply for all the newbies out there who are still trying to learn about Forex.
Check back soon for the actual "meat and potatoes" information to get you profiting in Forex ASAP!
Good night all!
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