In this educational article, we will highlight one of the terms that we have used a lot, especially on the
Internet, which is the term Forex market, FOREX, or the global currency market.
What is Forex or Foreign Exchange Market and Trading?
FOREX is an abbreviation for the term Forex Exchange Market, which means the foreign exchange market and is also symbolized by the abbreviation FX. Forex is considered one of the most famous financial markets, and it is a huge financial market in which countries' currencies are traded among millions of investors, banks, and investment funds for several purposes, the most important of which is benefiting from changes in exchange rates. Currencies and making a profit through buying and selling operations. Forex trading has flourished due to technological development and the spread of the Internet and modern means of communication. The Forex market is a decentralized market and has no geographical boundaries, as trading takes place in the OTC system or trading outside the platform.
How did the Forex market start? The origin of money?
Forex began based on the principle of barter, as humans in ancient times practiced the trade process by bartering goods with each other because there was no money or banknotes at that time. The barter system was the basic building block on which the currency trading system relied. Then people used what was valuable in their point of view in operations. Trade such as snails, precious stones, and others in trade operations, where the value of the commodity is determined by a certain number of these media, such as buying meat for four snails.
These media were soon replaced by gold, silver, and precious metals, and people then began to use paper currencies as an alternative to gold and silver, so that banknotes were printed that expressed a certain amount of gold, and this was the beginning of the emergence of the money that we know today.
What is the trading volume in the Forex market?
The Forex market is the largest financial market in the world in terms of liquidity and trading volume, as it reached 7.5 trillion dollars per day in April 2022, which is equivalent to approximately 28.2 trillion Saudi riyals per day. Forex cannot be compared to any other financial market in terms of the volume of liquidity, for example: Stock Exchange New York (NYSE), which is the largest stock market in the world, has a daily trading volume that does not exceed $70 billion.
Who trades Forex? What is the reason for its quantitative liquidity?
This huge liquidity in the currency market is due to the presence of different categories of traders such as major investment banks, central banks, investment funds, investment management companies, brokerage companies, individual traders and traders for non-financial purposes such as hedging purposes, in addition to the development of means of communication and online trade. And using financial facilities or leverage to trade Forex, this is what attracts more and more investors to the currency market day after day.
Advantages and disadvantages of Forex trading, and is Forex trading suitable for you?
The most important features of the currency market
Huge liquidity and high trading volume in Forex
Forex trading is open 24 hours 5 days a week
Forex trading is done in a decentralized way - OTC
Ease of following the Forex market and restricting currency news
The possibility of making profit during the rise or fall of currencies
The possibility of trading with small amounts thanks to financial leverage
Ease of opening a real account in Forex
Disadvantages of the currency market
Degree of volatility and price activity
High risk
Weak supervisory or organizational aspect
When can Forex be traded? Forex market working hours and trading hours
The Forex market is a decentralized market that operates through various means of communication around the world without a specific geographical headquarters as a center for trading. The market operates 24 hours a day for five days a week from the beginning of trading on Monday until its end on Friday. The market is closed on Saturday and Sunday as a global weekend. . Forex market trading goes through four main periods: the American, European, Asian, and Australian trading periods. Thus, trading does not stop throughout the day, as these periods overlap with each other and continue for the next day.
What currencies are there in the Forex market? What is the meaning of currency pairs?
What currencies are traded in Forex? As we explained previously, Forex is the foreign exchange market, so traders trade the currencies of countries, and the most famous of these currencies are the currencies of the major countries that have economic weight, and attention is often given to 8 currencies as they are considered the most important and highest traded among the currencies of the world, which are:
1.USD - the currency of the United States of America.
2.Euro EUR - the currency of the European Union countries.
3.Sterling pound GBP - the currency of Britain
4.Japanese Yen (JPY) - the currency of Japan.
5.Australian Dollar AUD - the currency of Australia.
6.New Zealand Dollar NZD - the currency of New Zealand.
7.Canadian Dollar CAD - the currency of Canada.
8.Swiss Franc CHF - the currency of Switzerland.
System Trading pairs in the Forex market
Trading in the Forex market is carried out in pairs, where two currencies are combined in one pair to trade one currency against the other. This means selling one currency in exchange for buying another at the same time, meaning that the currency pair contains two currencies, a base currency and a counter currency, for each pair of currencies. Currency pairs An exchange rate that expresses what is required to be paid in the base currency to obtain one unit of the corresponding currency. For example:
To get one euro, you must pay 1.17189 US dollars for it, which means that one euro is equal to one dollar and 17 cents.
The presence of the selling price and the buying price, which is completely similar to what appears in the stock market in terms of the presence of the asking price and the offering price, as the buying price represents the price at which the purchase transaction will be executed, while the selling price is the price at which the selling process will be executed, and as you can see, there is A small difference in selling the buying price and selling price. This is what we call the spread or price difference.
What are the Forex basics that you need to know before starting Forex trading?
Currency pairs traded in Forex
Spread, price difference, or difference in buying and selling prices
What is a point or PIP and how do you calculate profits and losses in Forex?
The method of buying and selling, the size of the deal and the contract in Forex
What is leverage and margin in Forex?
What is a margin call or liquidation of trades?
How do you start trading currencies?
The currency trading market is a huge market available to everyone, and you can easily start trading currencies by opening an investment account with one of the Forex companies or brokerage companies. Brokerage companies provide facilities to individuals, what is called financial leverage or margin trading, which enables them to trade in large amounts compared to the deposited capital. In order for an individual to be able to trade FX, he must:
First: Learn the basics of FX trading and the most important Forex terms.
Second: Learn how to use the Forex trading platform
Third: Learn to analyze the movement of FX and currency prices.
Fourth: Learn capital management in FX.
Fifth: Create a plan for trading in FX.
Sixth: Trade with a demo account before risking real money.
Seventh: Choose the best FX broker and open a real account.
Is currency trading profitable? What are the risks of currency trading?
Currency trading is characterized by its flexibility compared to stock trading in terms of risk management. A trader in the currency market can achieve very high returns whenever he decides to increase the risk further, as currency trading is often carried out using financial leverage and the margin system, which doubles the volume of money traded compared to its real value, and this is what causes the risk of investing in the currency market. Therefore, you must be careful to learn currency trading well before starting and only trade with excess funds.