What is Forex?

Well, Forex is the abbreviated name to describe the biggest financial exchange on the planet. The full name to describe this place is “The Foreign Exchange Market.”  So what are we dealing with?  Forex is a massive exchange place, with between $2 and $5 trillion dollars traded every single day. When compared to any particular country’s domestic market, the difference is clear.

Do you know what goes on in Forex?

To put it plainly, Forex is a place where one currency is exchanged for different currency.  It is a place where different foreign currencies are traded. That is all. No physical assets come into play. There are no corporations or shares of stock in play.  The game is pretty simple, but to play it successfully is challenging. The goal is to simply buy a currency, and hope it will go up in relation to the currency you used to buy it. Anytime you make a purchase, you have to sell the money you used to make that purchase. Thus, anytime you buy, you also sell.  This is what traders refer to as a “pair.”

Is there central market or location?

Not exactly. It’s different from other exchanges. Because Forex is global, it cannot fairly have a central nucleus. Anyone can trade over the computer or through other communication devices.  There are big centers in Tokyo, London, and New York, but no one place can be called home. One benefit of being global, is that Forex never closes. That’s right. If you feel like making a trade at four in the morning, go for it. This is great for those that tire of having to jump at the opening of a market that was affected by news while it was closed.

What currencies are exchanged?

To be honest, there are only a couple main currencies regularly exchanged, i.e., USD, YEN, EUR. There are many others, but they trade at a much lower volume.  The ones listed above are often call “the big three.”

How does Forex compare to traditional stocks?

Of course there are advantages and drawbacks. For starters, the market never closes. For some this is terrible and causes sleep deprivation, while others love the convenience. Forex has very low operational costs and getting started is usually easier. You can get into the game with less than $1000, and even buy on margin. Also, there are only three big figures to focus on, USD, EUR, and the YEN. If you think about this, consider how much easier this is than a traditional stock market. You only have two, three, or at most four factors to keep your eye on. Overtime, you develop instincts. You come to understand how one affects the other.

How risky is Forex?

Very! You can easily lose money if you are not incredibly careful. It takes time and practice to get good, and overtime, you’ll come to understand the risk better. This is why it is crucial for you to educate yourself as much as possible before jumping in.