It is an international market, where banks and corporations trade currencies. Forex is the most liquid market in the world, with around 5.1 trillion USD of daily trading volume.
Forex has two major uses: hedging and speculation. In order to provide you with a detailed review of the market, we’ve partnered with JustForex — a popular Forex broker in South Africa.
Hedging is a method of nullifying the greater risks by losing a smaller fraction of your profit. While it may take some time to get your head around the concept, the process itself is pretty simple. Here’s an example:
However, if the company shorted the EUR on Forex and bought more USD while they were at 0.87 EUR, they could offset the loss. If the USD grew in value, they would have made more money from the shorting. If the EUR grew in value, they would have made more profits from the sales. It’s a win-win situation, at the cost of superficial losses.
Every international or simply export company uses Forex for hedging. However, it is not something you should probably worry about — unless you are running an export business, of course. Most Forex market participants use it not for hedging, but for speculation.
Forex is very volatile compared to other major markets — However, this change is not chaotic — there are good reasons for it, as well as the ways to predict said change with decent enough reliability. This makes it very interesting to the private and corporate traders.
The currencies on Forex are traded in pairs. For example, EUR/USD is a currency pair where EUR is traded for USD. Current EUR/USD rate is 1.14000, which means that for each 1 EUR you can buy 1.14 USD. The major currency pairs are EUR/USD, GBP/USD, USD/CAD and USD/JPY.
There are two ways to trade currency pairs — long trading and short trading. Long trading involves buying currency, waiting of its value to grow, then selling it later for profit. Short trading involves borrowing currency, selling it, waiting for the price to drop, then buying it back to return the loan and keep the leftovers.
The value of the currency inside the pair depends on the economic performance of the country, as well as its geopolitical conditions. For example, Brexit significantly wounded GBP and weakened it against other currencies in its currency pairs. Other events that can affect the market are the economic report releases, government reforms, major news, etc.
There is no definitive answer to this question. All Forex strategies have different levels of profitability, risk, and investments involved. The best strategies for newcomers are Price Action and scalping.
Price Action is more lenient and requires only two hours of attention per day. However, the profits are rather low for Forex — only 20% monthly, provided that everything goes well.
Scalping is a lot more demanding — most scalpers trade at least six hours per day. However, profits make it worth it, with 10-15% daily.
If you are going to trade on Forex, you need a Forex terminal. There are ways to obtain your own, since private traders have been allowed on the market since 1990s, but it is unreasonably expensive. For a personal terminal, you’d have to spend north of 6 000 USD, not counting the additional fees and expenses.
However, there is another way to get on the market — Forex brokers. These are companies already own the terminals and allow private traders to access them.
JustForex is an international Forex broker with seven years of experience. The company is very friendly to newcomers and provides a lot of educational material. You can also open a practice account, in order to prove your trading acumen, before you start trading with real money.