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What is Forex and how does it work?

Hva er Forex og hvordan fungerer det?

Lately, I am getting a lot of emails asking me about Forex, what is Forex, how it works, how to get started in Forex and all kinds of related questions.

I don’t know if it is because it is fashionable, or if it is awakening a new stream of traders. It is also possible that it is my imagination and I am simply more sensitized than usual, since I have been totally engrossed in the Forex world for a year now.

In any case, it seems that something is moving… and it has all the logic in the world:

What is Forex?

Forex is the foreign exchange market. Not just the euro or the dollar, but the euro against the dollar, the dollar against the yen, the British pound against the Swiss franc, etc.

In this market, currency pairs are speculated on, and I can assure you that the movement of this market is absolutely frenetic. It’s just brimming with activity.

Why does Forex work?

  • Because it is the most liquid market in the world
  • Because it allows huge leverage
  • Because it is extremely cheap to trade
  • Because it works 24 hours a day
  • Because it is very convenient for intraday trading
  • Because with all brokers you can trade the same way
  • Because it is the most developed environment for automatic trading

Because it is the most liquid market in the world

Liquidity means participants, life, movement, action and speed when entering and exiting the market.

The EUR/USD (euro/dollar) alone accounts for about one-third of the entire Forex market volume. In addition, legend has it (I have not verified this fact) that more money moves in one day in the euro/dollar than in all Wall Street stocks combined in a year.

In any case, huge amounts of money are moved in Forex every day by hundreds of thousands, if not millions, of traders. You absolutely always find a spare counterparty at any time and at any price. In Forex, the slippage is derisory compared to the stock market.

Because it allows huge leverage

It allows leverage of up to 400:1.

That is, with 200 kroner you can move the equivalent of 8000 kroner (and win and lose for 8000 kroner of course).

Because trading is extremely cheap

To give you an idea, buying 1,000 euros of EUR/USD can cost you between 5 and 20 cents in commission.

How much does your stock broker charge you for buying 10000 kroner from Opera Software?

Because it works 24 hours a day

Currencies are traded non-stop throughout the week. The market opens on Monday morning in Sydney, which is Sunday night in Norway, and closes on Friday night.

The Asian, European and U.S. sessions are all incessantly passing each other by. While people sleep, the planet doesn’t stop spinning, so neither do the currency crosses.

If you want action you have it; any day, any time.

Because it’s so convenient for intraday trading

You only have to join the four previous advantages and this one is deduced alone: Liquidity in abundance (speed and precision of entry and exit), with the possibility of taking advantage of very short movements (thanks to the leverage), which allows you to trade a lot (thanks to its low cost) and at any time. This cocktail makes Forex perfect so that, when you have some free time, you can go online and compete with the market to see who can make money from whom.

Because with all brokers you can trade the same way.

In the world of financial markets, the forex market represents efficiency at its highest level.

This is not like in stocks, where every broker is completely different and you have to learn their menus, options, names and all sorts of peculiarities before you can trade with ease.

In Forex there is a standard software (called Metatrader) offered by absolutely all brokers.

In addition, each broker can offer you other more beautiful or complete programs. However, if you are used to one broker, switching to another one will practically only change the icon that the new broker will put on its Metatrader, but they all have exactly the same appearance, organization and functionalities.

Because it is the most developed environment for automatic trading

This is precisely what I am currently immersed in and it is what attracts me the most to Forex:

In addition to speculating short, medium and long term on stocks and ETFs, the Forex market allows me to make money trading intraday without the need to be in front of the computer, bite my nails in front of the screen or suffer when quotes go up or when they go down.

Automatic (pure systematic) trading is a completely different battle. Here there is no burden of respecting the stop loss, or buying or selling at the right time, for example.

Here there is no psychological war, there is a war of numbers, of factors, of probabilities, of percentages. It is much less artistic, and instead much more scientific.

It is much easier to tame the beast, because the beast is no longer you, it is the numbers… and we all have a computer with which to do the math.

The final tip

Forex is so good to trade has a problem: It is the most complex, competitive, and difficult market. Next to the EUR/USD, the S&P500 is a little sister of charity.

So, to the question How to get started in Forex, how to approach the currency markets, the answer cannot be other than:

Very (very) carefully. With all the help and all the preparation you can get. With a level of caution somewhere between obsessive and paranoid. With a lot of patience and a lot of cold blood.

If you do so, you may be able to handle it moderately well. If you don’t, you’re lost, and I’m telling you from my own experience!

#forextrading #forexforbeginners #learningtotrading