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About forex trading-What is forex trading?

About forex trading

The foreign exchange market (foreign exchange exchange) is where supply and demand for a currency come together and exchange rates are determined at which trading takes place. A distinction is made between spot foreign exchange trading, in which the exchange transactions are settled immediately, and forward foreign exchange trading, in which an exchange rate is set when the transaction is concluded, but the transaction is settled in the future.

Many investors are very familiar with stocks,  and funds. But for many people, foreign exchange trading is still a huge mystery since it seems too complicated or dangerous.. And this despite the fact that the foreign exchange market (also known as the forex market), measured by daily trading volume, is many times larger than the stock market.

With a turnover of over 6 trillion dollars DAILY, it is actually the largest financial market in the world!

So can about forex trading really be so hopelessly complex when it is obviously carried out by so many market participants?

We want to help you find a comprehensive but easily digestible introduction to the topic of foreign exchange trading and ultimately decide whether trading currencies is suitable for your budget, level of knowledge and risk appetite about forex trading

about-forex-trading

But to be able to examine and evaluate about forex trading, you need a basic understanding of how forex trading works and where it originated.

The origins of foreign exchange trading

About forex trading  history of foreign exchange trading is that of money and the (international) exchange of goods.

It all began with humanity in the hunter-gatherer stage. Then came the time of the division of labor economy and with it the need to trade: “You give me meat from the animal you hunted. I give you crops that I grew.”

But because it was impractical to constantly exchange goods for one another, a universal means of exchange was needed: money. Since not everyone invented the same money, different currencies soon became commonplace. Foreign exchange trading was born.

Skipping forward a few centuries, we are now in the mid-19th century when the gold standard was introduced. At that time, the value of money was tied to a fixed amount of gold.

And this is where the distinction between flexible and fixed exchange rates, which is crucial for foreign exchange trading, comes into play. The gold standard, as a system of fixed rates, had certain advantages and disadvantages. In any case, it was not possible to make profits with foreign exchange transactions, as their price was not determined by supply and demand.

The gold standard was abandoned and a de facto system of variable exchange rates was instituted as a result of the impacts of World War I and the Great Depression of the 1930s.. Then came World War II, and after that the international economy was once again faced with the question of how to organize the global monetary system.

. Essentially, the states agreed on fixed exchange rates with a fixed exchange rate to the leading currency, the US dollar. The dollar, in turn, was tied to gold.

The international organizations that still exist today, the International Monetary Fund and the World Bank (actually: International Bank for Reconstruction and Development, IBRD), date back to this time.

One of the main problems with Bretton Woods, however, was the so-called trilemma of monetary policy, which can be described as a triangle. 

The trilemma is that only two goals can be achieved at the same time. For example, free movement of capital leads to a currency’s appreciation or depreciation. In order for the fixed exchange rates to remain in balance, countries must trade foreign currencies with each other on a large scale. This can lead, among other things, to a country importing inflation, as was the case with Germany in the 1970s.

These design flaws in the Bretton Woods system led to its abandonment in 1973.

From then on, exchange rates were liberalized and actual foreign exchange trading could develop.

In order to learn foreign exchange trading and test it completely risk-free, we recommend that you try out a free demo account first and familiarize yourself with foreign exchange trading until you feel ready to open a live account.

Forex trading does not work without the foreign exchange market

Foreign currencies are not traded on a formal stock exchange, but rather on the so-called OTC market. This involves  between market participants, without the involvement of a stock exchange. Because it occurs directly over the counter, this over-the-counter market is known as the “over the counter” market.

Foreign exchange transactions occur when banks, trading companies, central banks, funds and private investors buy, sell, exchange and speculate on currencies.

Currency trading is considered the largest financial market, with more than six trillion US dollars in daily transactions. That exceeds the total amount of transactions in the stock and futures markets put together.

The foreign exchange market is therefore not the place where individuals face each other and exchange bundles of money, as in a currency exchange office. Rather, the supply and demand for foreign currencies meet on the global foreign exchange market, known as the FX or  for short.

In the decades since the collapse of Bretton Woods, Forex volume has increased dramatically, as the following figure shows.

Forex Trading: Experts and Novices Guide to Trading Foreign Exchange

Private investors had no access to foreign exchange markets prior to the Internet and online brokers levelling the playing ground; their only option was to transact when on vacation at the exchange office.

Nonetheless, tiny investors can now trade currencies almost anywhere, at any time, as long as they have an internet connection.

Basically, there are two ways to trade foreign exchange: directly on the spot market or through financial derivatives like contracts for difference (CFDs).

The latter is especially appropriate because of the currency market’s exceptionally high liquidity and moderate volatility. You can transfer pretty large trading quantities with relatively little initial commitment thanks to CFDs’ leverage. This implies that you are able to take part in minor changes in exchange rates. 
Later in this post, there will be a calculation example showing you how leverage can impact your trading performance. 
The major interest rate movements, economic data, and political events like elections and wars all have an impact on the volatile foreign exchange markets. 
You have a decent chance of making money off of changes in exchange rates if you study the theoretical underpinnings of Forex trading, monitor pertinent current affairs, select a trustworthy broker, and use dependable trading software. 
But keep in mind that without risks, opportunities cannot exist. In foreign exchange trading, traders might lose money, just like in anything else. As a novice trader, you ought to proceed cautiously. 

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