Forex market for beginners
Forex trading for beginners can be especially challenging. This is mainly due to unrealistic expectations that are common among newbies. What you need to know is that currency trading is by no means a get-rich-quick scheme.
This article is our complete beginner’s guide to Forex trading. On this page, you will get an introduction to the Forex market, how it works and key terminology, as well as the benefits of trading different currencies.
Forex training for beginners – The emergence and structure of the FOREX market
The FOREX international currency market appeared on January 8, 1976. This date is considered the birthday of the new world monetary system, which replaced the gold standard, and the pegging of currencies to the US dollar. On this day, in the Jamaican city of Kingston, the G7 countries decided to restructure the existing currency canons and switch to freely floating exchange rates.
The very concept of hard currency – a freely convertible currency – appeared somewhat later, but the principle of market formation remains the same today as then. Its essence boils down to the fact that all currencies participating in the auctions no longer need to be backed by gold, and their international value is determined not by a fixed value in relation to the US dollar, but independently, based on the demand for this currency and the volume of its supply in foreign currency. market.
In fact, countries and, accordingly, their currencies were given great freedom, but also a great burden in the struggle to be considered a full-fledged currency and have international recognition of all participants. From now on, trust in a particular currency was determined only by investors, holders of these currencies, exporters and importers, who decided how convenient, profitable and reliable it is to operate and store capital in a particular currency. This is how the formation of the world currency market, as well as national currency systems within it, took place, taking into account the emergence of the concept of free conversion.
Both then and now, free conversion means an unhindered opportunity to exchange one currency for another at the existing market rate, that is, at the price that currently represents the consensus between all bidders, or, as they say, is “fair”. This very fairness is reflected in the currency parity ratios on the FOREX international currency market.
The abbreviation FOREX itself is built on the first syllables of the abbreviation of two English words “FOReign EXchange”, which literally means “international currency exchange”. It is worth noting that FOREX is a market for conversion transactions, and it would be wrong, to summarize, to call it the main or the only foreign exchange market, since in addition to it, there are also credit and deposit operations with currency performed by banks, as well as national currency markets within each country. …
FOREX is the market with the largest capitalization, the daily cash turnover in 2018 was, according to various estimates, up to 5.0 – 6.0 trillion dollars.
Also, a very wide list of participants is presented on the foreign exchange market, from world-renowned giant corporations and governments of various states to private investors with relatively small amounts of capital.
It is not possible to calculate the exact trading volumes and capitalization on FOREX, since this is a classic example of the over-the-counter market, and, therefore, there is no strict control and registration of all transactions on it. But the existing huge daily capital turnover is a guarantor of very high liquidity, and therefore a guarantor of the reliability of trading in terms of the possibility of making transactions.
With such a scale of money “spinning in the market”, there is no need to talk about a liquidity crisis, which, for example, may arise in the stock markets: there are always those who want to buy and sell this or that currency. At the same time, of course, the demand for some currencies is higher, for others – lower, but it is always present, since not all players come to the market in order to extract profit from exchange rate differences. Many, as we briefly said above, pursue other goals. In the scheme presented above, we see that all conversion (that is, exchange) operations are divided into three main types.
Let’s take a closer look at what their essence is, and also determine who is the most important participant in trading on the FOREX international currency market.
Speculative operations
It is this type of operations that is most often implied when it comes to the work of a private investor in this market (and in some other markets too). It is important to understand that not all representatives of market participants are keen on speculation, that is, the idea of “buying at a cheaper price – selling at a higher price,” but there are indeed many of them. First of all, speculative goals are pursued by market users: private and institutional investors and traders. Market users who also set themselves the task of earning income on the exchange rate difference of currencies include investment funds, special divisions of many commercial banks and financial holdings, as well as indirectly referring to speculators, brokerage and financial companies that act as an intermediary between the market -users and the market and make money on the spread.
