Summary sentence of Forex for ambitious beginners: Learn to invest in forex with a good basis to avoid many beginners’ mistakes; this is what you will learn by reading this article.
The foreign exchange market, in English foreign exchange hence the name FOREX, has been the fastest growing market in the past 20 years. There are nearly 4000 billion transaction volumes per day! This is due to the fact that currency trading is becoming more and more popular thanks to several factors:
The development of the internet that allows everyone to trade from home. An increased willingness to take risks. The new traders are ready to take more risks. The goal is to get a return on investment as quickly as possible. The start-up costs are very low. Forex is open to everyone, even those who do not have a large starting capital. Low fees trading forex costs less than stocks because brokers do not take commissions other than the spread. Opening time, unlike the markets which are only open a few hours a day, forex is open 24 hours a day, 5 days a week. You can therefore do forex trading anytime except weekends. You have no doubt heard stories of young traders who became millionaires in a short time starting with a small capital. This is not what you will learn in this article. Even if some have succeeded in this feat, we must start by keeping our feet on the ground.
The aim of the article is to learn a reliable method to make money on forex. This method will not allow you to get rich quickly. As a good beginner, you will inevitably make mistakes that will be more or less costly. It will be up to you to learn the lessons. This article is not intended to make you rich but to teach you how Forex works. It will teach you the important strategies and how to protect your capital. The purpose of this article is for you to get off to a good start in Forex.
How Forex Works
Forex, as it is now, has existed since the 1970s. In the past, we used the gold standard to define the value of a currency. We set a weight of gold that corresponded to the value. The exchange of coins and notes for gold was certified by the state. Thanks to this system, the value of a currency was very stable. There was no fear that it would lose value since it was directly linked to the value of gold. Converting currencies was therefore also easy since the value of currencies was always the same. In the past, the price of gold was much less volatile than it is today. It was during the 1st World War that Western countries abandoned the gold standard. The United States did the same later because of the Great Depression of 1933. In 1944, after the Normandy landings, the allies met in Betton Woods to discuss how the world economy would be structured after the war. It was during this meeting that the IMF was founded. The United States has reintroduced the gold standard into its monetary system, thereby pegging all other currencies to the dollar. These are connected to the gold standard via their parity with the dollar. In this way the US dollar became the international reserve currency, which is still the case today. However, in 1970, because of the increasing cost of the Vietnam War, the United States was forced to abandon the gold standard. This ended the agreement put in place at Bretton Woods, which ensured monetary stability by linking the most important currency to the gold standard.
Despite this, the dollar remained the reserve currency. This means that since that time, international monetary stability has been closely linked to the stability of the US dollar. It was the beginning of the era of floating currencies. The price of currency is therefore now determined by the free market like it shows on this guide.
The term Forex is an acronym for foreign exchange, also known as the foreign exchange market. It is the biggest financial market in the world. It is an over-the-counter market, which means that orders do not go through the stock market, but are made by the participants themselves. There is no supervisory authority. As Forex is a market without a central exchange or supervisory authority, this market is open 24 hours a day, five days a week. In fact, it remains open as long as there are banks to process currency orders.
A few years ago, the main players on the foreign exchange market were banks, multinationals and governments. But in recent years, a new player with a lot of impact has come into play: the individual trader. Initially, Forex was used primarily to ensure the proper functioning of the international monetary system. But nowadays, 70 to 90% of the volume of orders comes from speculation of people who try to earn money by exchanging currencies. This is also the case for other financial markets.
How are exchange rates determined?
In forex, the value of one currency is determined in relation to another currency. They are exchanged in pairs. For example, the euro against the dollar, whose currency pair is, indicated EUR / USD (euro / dollar). When demand for euros increases, the rate of the EUR / USD pair also increases. When demand decreases, the EUR / USD pair also decreases. All currencies are quoted against each other. It is therefore possible to trade hundreds of currency pairs on the forex. The most important currency pair is EUR / USD.
The difference between Forex and Stocks
The main difference between stocks and currencies is that if you own a stock in a company, you become one of the owners of the company. In forex, you just own money. A position in forex has no intrinsic value. In addition, if you own a stock, you will likely receive dividends. The share price of a company with good financial health should normally go up in the long run. On the other hand, the price of a currency pair will tend to fluctuate rather than go up over the long term. Forex is therefore a speculative market rather than an investment market. One earns money by speculating the rise or fall of a currency over a certain period. But putting more than you can afford is not going to imitate them. It is better to go there little by little and to grow your capital little by little, rather than to try a poker game and end up with nothing.
The capital you will need will depend on your goal. If you only want to try trading a little, a small capital of 200 euros will be enough. This will allow you, with the micro-batches to hold a good time and learn from your mistakes. If your goal is to make a living on the forex, a starting capital of 200 euros will also be enough to see if you are able to be profitable on a regular basis. On the other hand, do not expect to get rich and leave your job after 3 months with this starting capital.