A good place to start in your journey in Forex Education..
At TradeForex.ng we have put together a number of articles that will help you start your journey in Forex education, and will continuously add more to ensure that you are prepared for trading. Here we explain what Forex is and how it works.
If you would like to learn how to trade Forex or are looking for trading signals or Expert Advisors, this Forex Education section is the place to start so that you can really see if trading Forex is your thing, and if so, that you’re prepared to begin.
So Exactly What is Forex?
Forex is the name of the international interbank foreign exchange market (and is short for Foreign Exchange Market).
Its daily turnover is around $5 trillion, making Forex one of the largest segments of the global financial industry and one of the most lucrative markets for private investors.
Forex is an informal network of trade relations between the parties throughout the world, which include central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, multinational corporations, and various private investors. All major currencies are traded in this market. The main role of the Foreign Exchange Market is owned by banks, which are called market makers, as they make active trading, offering to buy or sell the currency to its clients and counterparty banks.
And What is traded in Forex?
The answer is simple; money! When we speak of money, we mean the world’s major currencies. Unlike other markets, you are not buying and selling tangible goods, but simultaneously buying and selling money of different currencies. Buying currency in the Forex market can be considered as a purchase of shares.
When you buy the US dollar, in fact, you buy a ‘share’ in the American economy. It is like betting with the market that the US economy is doing well, and it will grow. If it does grow, then you will want to sell that share which hopefuly is more expensive by then, which results in you making a profit, since you are selling it for more than you originally bought it for. The bottom line is that the exchange rate of the currency against other currencies is a comparison of the economic conditions in a country with the economic conditions in other countries.
The main currencies of the forex trading market are also referred to as ‘major currencies’. They are characterized by high levels of trading volume in Forex. The US dollar definitely takes the first place. In second place is the Euro (in terms of forex trading). Then in third place for a long time was both the British pound and the Japanese Yen. Recently however, the Yen has gained the upper hand.
Major currencies constitute currency pairs – the main financial instrument in the forex market.
USD = US Dollar, used in the financial slang, buck (buck)
EUR = Euro, the single European currency
GBP = British pound sterling, to finance slang also used the name “pound» sterling, cable
JPY = Japanese yen.
CHF = Swiss franc, also known as “Suisse» (swissy) used in the financial slang;
CAD = Canadian Dollar, slang – Loonie
AUD = Austraian Dollar, slang Aussie
NZD = New Zeeland Dollar, slang – kiwi
As you can see, currency symbols always have 3 letters, the first two letters represent the name of the country and the third letter is the name of that country’s currency. For example GBP – GB is Great Britan and P stands for Pound.
Advantages of Trading Forex
The Forex Foreign Exchange Market has several clear advantages, thanks to which the trader can be anyone, regardless of nationality, ethnicity, income and education:
- Flexible Availability (Trading is available 24 hours a day, 5 days a week!)
- High liquidity
- Low price deals
- Leverage principle
- No restrictions
- No one can influence the market
The Best Time to Trade Forex
Your Forex education wouldn’t be complete without mentioning the four sessions available for trading:
New York opens at 8:00 am to 5:00 pm EST (EDT) – Nigeria time – 2pm – 9pm
Tokyo opens at 7:00 pm to 4:00 am EST (EDT) Nigeria time – 1am – 10am
Sydney opens at 5:00 pm to 2:00 am EST (EDT) Nigeria time – 11pm – 8am
London opens at 3:00 am to 12:00 noon EST (EDT) Nigeria time – 9am – 6pm
There are also hours when two sessions overlap:
New York and London: between 8:00 am — 12:00 noon EST (EDT) Nigeria time 1pm – 5pm
Sydney and Tokyo: between 7:00 pm — 2:00 am EST (EDT) Nigeria time 12am – 7am
London and Tokyo: between 3:00 am — 4:00am EST (EDT) Nigeria time 8am – 9am
Trading EUR/USD, GBP/USD currency pairs will give very good results between 1pm and 5pm Nigeria time, when two largest financial centers (London and New York) are trading like crazy.
So most action happens during the middle of the week.
Best Times to Trade:
- When two sessions are overlapping
- The European session which is the busiest
- The middle of the week when there is the most movement
Worst Times to Trade:
- Fridays – The liquidity goes down
- Holidays – There is not much movement
- Major news events – Too risky unless you are a very experienced trader (and perhaps not even then!)