Forex (eng. Forex market, FX-market) is a market in which transactions for the sale and purchase of currencies are made in order to make a profit by charging the rates of these currencies. Forex is the largest financial market in the world, its turnover significantly exceeds the turnover of the stock and other markets; in this regard, there is high liquidity on Forex, and this market attracts many traders, both beginners, and professionals.
A bit of history – what is Forex and how it all began
After the US government canceled the pegging of the American dollar to the gold standard on August 15, 1971, world currencies began to float freely. Such a landmark decision inevitably created the conditions for fundamentally new financial transactions – international currency trading. The independence of world money from the value of gold made it possible to sell and buy foreign exchange assets of different countries in accordance with supply and demand.
In 1978, the International Monetary Fund formally recognized the possibility of world currencies abandoning their peg to the dollar and gold, initiating free trade with floating rates. In this situation, the majority of importers and exporters became participants in the new foreign exchange market, which was significantly influenced by the Central Banks of the most developed countries. With the development of Internet technologies, most operations have moved to the virtual space, forming the main platform for buying and selling currencies, called Forex (from the English Foreign Exchange – foreign exchange).
The official date of birth of this market is 1973, in which the Bretton Woods Treaty, which fixed exchange rates, was terminated. And already in 1977, the daily turnover of the new foreign exchange market reached the level of 5 billion US dollars. The daily turnover in 2017 is over 6 trillion. American dollars.
Five Key Priorities of the Forex Exchange
- Conclusion of transactions using more than 50 major world currencies.
- Round-the-clock work 5 days a week.
- A wide range of trading instruments.
- An impressive range of free and paid tutorials.
- Intuitive multilingual software platform interfaces.
There are also demo accounts on Forex, with the help of which beginners can learn all the basic nuances of concluding contracts remotely. This project operates within the framework of international law, cooperating with the world's largest banks and stock exchanges. New options and opportunities constantly appear in this system, which makes it easier to conclude profitable contracts. Using the leverage of up to 400: 1 allows you to work with large lots without having a large start-up capital.
Ten Basic Facts and Concepts of Forex
- Currency trading on Forex is carried out using dealing centers (brokerage platforms), each of which offers traders its own rules, opportunities, and privileges.
- Registration on the chosen brokerage platform will require the entry and confirmation of reliable personal data.
- You can open a Forex account in almost any popular currency.
- The exchange starts on Monday at 0:00 and closes on Saturday at 0:00. In winter, the schedule is shifted by 1 hour: from 1:00 to 1:00.
- Forex deals with currencies of different countries, each of which is designated by three English letters (US dollar – USD, euro – EUR, Swiss franc – CHF, British pound – GBP, etc.).
- The most popular pairs are the 7 main pairs, which include the US dollar and other currencies of developed countries: EURUSD, USDJPY, GBPUSD, USDCAD, USDCHF, AUDUSD, NZDUSD.
- The essence of most transactions with currency pairs is to sell one currency at the highest price and buy another at the lowest cost. For a better understanding, we can simply talk about a profitable exchange of currencies one to another in currency pairs.
- Since 2018, Forex has been actively trading alternative currencies (), among which Ethereum, Litecoin, and Altcoin are in the lead.
- To maximize profits with a small deposit, traders can use leverage – borrowed capital provided by the brokerage platform. If you are provided with a leverage of 1: 100, then if you have $ 100 on the deposit, you can purchase a lot worth $ 10,000.
- All permitted operations in the Forex currency market can be carried out as quickly as possible remotely without any restrictions. Protection of personal data and deposits is carried out using advanced encryption technologies.
In order to conclude successful trades, traders use two main analytical methods:
- Fundamental analysis – taking into account all economic and political factors that can affect exchange rates (inflation, unemployment rate, interest rates of central banks, GDP growth and decline, etc.).
- Technical analysis – monitoring of quotation charts with a forecast of the course behavior in the near future.
Curious facts about Forex trading
- More than 90% of novice traders lose their first deposit as a result of unsuccessful trades, even with successful work with demo accounts. The reason for this situation is the increased nervousness observed when starting to work with real money.
- After losing the first deposit, no more than 7% of newcomers continue to work on Forex.
- The largest player in the foreign exchange market in the UK, which accounts for over 42% of transactions. The second place is occupied by traders from the USA (21%), and Germany (about 11%) is considered the “bronze medalist” of this competition since 2017. However, 92% of contracts involve the US dollar.
- Most losing contracts (over 95%) are emotionally agitated. Therefore, the main task for those who want to succeed in this market is to develop self-control and composure.
- If you spend the daily turnover of the Forex exchange on the purchase of new middle-class cars, then every Russian family can be provided with personal transport.