Forex Answers
1/ What is Forex?
The term ‘Forex’ is short-hand for ‘foreign exchange.’ Currency Trading is another term whcih is commonly used when talking about forex. The FOREX is a group of approximately 4500 currency trading institutions, including international banks, government central banks and commercial companies.The Forex Market is then the Foreign Exchange Market. Just as you have the stock market where stock are being exhanged (or bought and sold), in the forex market, what is being exchanged on this market is not stocks or bonds, but currencies (monies) from around the world.
Described another way, the Forex market is the place where U.S. dollars, Euros, Yen and other major currencies are bought and sold. It represents the largest financial market in the world by volume.
It may be interesting to note that the forex market is larger than all the other financial markets combined.
2/ How did the forex market begin?
The origins of the foreign exchange market date back to 1944, when The United Nations Monetary Fund convened in New Hampshire to develop a plan for the stabilisation of the world economy.
Up until World War II, the British Pound had been the monetary unit of choice when comparing the relative value of foreign currencies. However, Hitler’s regime managed to devalue the Pound by way of a massive counterfeiting scheme. Something had to be done quickly in order to avert a worldwide economic depression.
Out of this meeting in New Hampshire came the “Bretton Woods Accord”; a new policy implementing the Gold Standard, which tied the value the U.S. Dollar to the price of one ounce of gold. It was further agreed that the Dollar would replace the British Pound as the benchmark “currency of exchange”.
All other currencies were aligned to the Dollar, and a ‘fixed exchange rate” of +/- 1% was established. In other words, a foreign currency could fluctuate a maximum of 1% higher or lower than the Dollar. Any fluctuations beyond this limit required that the ‘offending’ nation’s central bank step in to correct the imbalance.
The Bretton Woods accord remained in effect until 1971, when it was determined that the U.S. dollar could no longer hold steady relative to gold. At this time, the ‘fixed exchange rate’ model was abandoned in favor of the ‘floating exchange rate’ we still use today.
3/ How Is The Forex Market Similar and Different To The To The Stock Market?
The basic principle of how profit is made in the stock market and the forex market is the same. if you buy and your chosen market goes up you are in a position to profit. If you sell and your chosen market moves downward you are also in a position to profit.
There are many aspects of the forex market that gives it an advantage over the stock market. Here are a few:
- The forex market is operational 24 hours a day for 5 days a week, as opposed to the stock market which only allows trading during specific hours of the day. Futher, there are forex traders in every time zone who are willing to continually trade.
- There is enormous liquidity in the forex market, since the market is open 24 hours and there is always a trader willing to buy or sell, making easy to trade most currencies.
- There is the ability to profit in rising as well as falling markets
- In many cases, you don’t have to to pay any commission on trades
- The forex market allows leveraged trading. To put that in a simple way – you don’t need to have $100,000 to buy a contract for $100,000. You can the same contract using $1000. That’s a leverage ratio of 1:100! You can’t get that in the stock market. The $1000 dollars is all you invest and all you risk.
4/ Is It Difficult To Learn Forex Trading?
Forex trading isn’t hard or complicated. Forex trading can be done by following a set of simple instructions. You don’t need to reinvent the wheel in order to trade Forex successfully. Also you do not need to know every single detail about the Forex market in order to trade successfully. Just as you do not need to personally know everything about the internal combustion engine, but that does not keep you from successfully driving a car.
5/ Is the forex market risky?
The forex market is risky just as trading stocks. However, unlike trading stocks, in forex trading, you cannot lose more than your initial investment… and you can make unlimited profit. you should never risk more than you can afford to lose how does one profit from the forex market.
6/ Can the forex market give me financial freedom?
People have done well in the world of trading. You are probably familiar with Warren Buffet. Mr. Buffett is considered by many to be the world’s most successful investor and he is worth billions. He is basically the tip top example of what is possible in the financial markets. There are numerous other examples of people who have been extremely successful in the markets. These people serve as an example of the incredible potential available in the global financial markets.
7/ How do i get started?
Assuming that you are a complete newbie, start by learning the *forex basics*. This is the first step of a three part system to becoming a successful trader. Once you learned the basics, you should get to better know and understand the market. This can be done by reading daily and weekly market reviews and opening a *demo forex account* and practicing. Thirdly, you’ll want to learn the various trading techniques that professional traders use. One of the best programs available for novice traders is the Forex Trading Made EZ Program.