What is Forex?
Forex is an abbreviation for the Foreign Exchange Market and can also be referred to as “FX.”
It’s the largest financial market in the world, trading $5 Trillion a day. To put that into
perspective, the New York Stock Exchange trades a little over $22 billion a day.
Trading in the Forex market involves buying and selling currency. Currency is traded in pairs, so
you’re buying one currency while selling another. For example, one of the most commonly
traded currency pairs is the Euro and US Dollar, abbreviated as EURUSD. When you place a
“buy” trade, you are buying the Euro and selling the US Dollar. When you sell the pair, you’re
selling the Euro and buying the US Dollar.
Is it easy to trade in the Forex market?
No. Contrary to the multitude of YouTube videos and sales propaganda, trading Forex is not
easy. If you notice at the bottom of any site that deals in the Forex market, there’s a disclaimer
that warns people it’s easy to lose money. The flip side is, when you educate yourself and
manage your risk by being fiscally responsible, it is possible to make large amounts of money.
Luckily, the Forex market is only two dimensional. It only moves up and down, so buying and
selling decisions are based on one of two movements.
Why trade Forex?
Approximately 80% of traders are trading for speculation. They expect to profit from the
change in value between currency pairs.
The remaining 20% of the market is the corporate market simply exchanging its currency. For
example, a large multinational company like McDonalds may be changing its Japanese Yen into
The forex market offers very low transaction costs, so you can start trading with as little as
$200. Although the barrier to entry is low, it’s recommended to start with $400 to ensure you
are liquid enough to weather a market spike or drop.
Am I trading money?
You’re not actually trading money. You’re buying and selling currency pair predictions. If you
use the EUR/USD as an example, and you predict the Euro will rise in value against the US
Dollar, you’re paid if your prediction is correct. If your prediction is wrong, you don’t make
money on that trade at that time.
Depending on your trading style, you can hold onto your trade until the market switches and
the Euro gains against the US Dollar and your trade becomes profitable.
What currencies are traded?
There are a variety of currency pairs that differ from broker to broker. The most common pairs
are EUR/USD – Euro / US Dollar
GBP/USD – British Pound / US Dollar
USD/JPY – US Dollar / Japanese Yen
USD/CHF - US Dollar / Swiss Frank
How is Forex traded?
Forex is traded through a Forex broker. Traders can sign up online and download one of the
trading platforms, like MT4, onto their computer or mobile device and start trading instantly.
What is a Pip?
Pip stands for Percentage In Point. It’s the smallest increment that a currency pair can move.
For example, if the EUR/USD moves up from 1.2000 to 1.2001, the increase is one pip.
What’s the difference between the Forex market and the stock market?
Although the charts look similar, the forex market is so large, no one controls it. Due to the
nature of the stock market, large corporations and banks control the market.
When can you trade Forex?
The markets are open 24 hours a day, five days a week, Monday to Friday. The market actually
opens on Sunday night, but the main trading starts on Monday morning.
How do you make money in the Forex Market?
You make money buying and selling currency pairs. You choose whether to buy or sell a
currency pair depending on what the market is doing. For example, if you are trading the
EURUSD and you believe the Euro will gain against the US Dollar, you buy. If you believe the
Euro will lose momentum, you sell.
How do you know which way the market is going to move?
You don’t. Even the most seasoned pros lose some trades. The Forex market is highly volatile
and can move up and down very quickly. You can, however, make an educated guess at how
the market is going to move using different analytical tools.
The three types of analysis are technical, fundamental, and sentimental. Technical analysis is
the study of price movements using the charts. Fundamental analysis uses social, economic,
and political factors to estimate the effect of supply and demand. And Sentimental analysis is
based on gut feel. It depends on what the trader feels the market is going to do based on past
What’s a lot?
A standard lot is 100,000 units, a mini-lot is 10,000 units and a micro-lot is 1,000 units. On a one
pip movement in the EURUSD market, your profit is $10 on a standard lot, $1 on a mini-lot and
10 cents on a micro-lot.
Where is the market located?
Unlike the stock market that has physical trading locations, the Forex market is traded all over
the world by banks, corporations, small investors and governments.
What is the best way to get involved in the market?
Invest $400 and get started. You have the option to open a demo account and pretend trade,
but since you don’t have any skin in the game, your results will be much different than when
you’re trading your own money. Trading with a demo account is like playing a video game,
there are no consequences to your actions, so there’s no real motivation to learn to trade
profitably. If you’ve got a bit of your own money on the table, it’s real. You’ll become much
more aware of how to trade successfully and ultimately become a much better trader.
If you want to simply invest some money and let a professional trader trade for you, you can
also do that. It’s called mirror trading. You simply sign up for a Forex account with a broker and
then sign up with a mirror trader and you get to trade what he trades.
How much money do I need to invest to start trading?
Depending on the broker, you can start trading for as little as $200. The difficulty with starting
with such a small amount of money is, it doesn’t allow you the freedom to experiment in the
market as you learn how to trade. You will most likely lose money in the beginning, so you need
enough of a cushion to ensure you don’t lose it all before you start making some. If you start
with $1,000, you give yourself a pretty good chance of learning how to trade and the style that
suits you. At the very minimum, start with $400. If you start off by trading micro-lots, 0.01 of a
lot, you’ll learn how the market reacts and how you react to the market. You’ll only make a few
cents or dollars on your trades, but as you get better at reading the market, you can increase
your trading amount.
How much time does it take to trade?
Trading can take as little as fifteen minutes a day, depending on how you trade. You can set
your trades in the morning and evening and go to work during the day. When you place your
trade, you also set a ‘take profit’ point. If the market hits your ‘take profit’ the money is
deposited into your account.
Alternatively, you can spend several hours a day watching the market and taking advantage of
What tools do I need?
At the very basic level, you need Forex software that you download from your broker. If you
want to up your game a bit, you may also want to include additional analysis tools that help you
determine which way the Forex market is likely to move. Two very helpful analysis tools are:
Forex Trendy – Forex Trend Scanner
Read the review here
Forex Trendy – Robotically scans the markets for you and sends you alerts when markets are
most likely profitable. The system is web-based, so you don’t have to download any software
onto your computer. Set this system to scan as many markets as you want and set the audible
warning to signal you when trades are most likely to be profitable. Read the Forex Trendy
Read the Trading Oracle review here
The Trading Oracle is a custom indicator that you load into your MT4 Forex trading software. It
was designed to send you signals for the binary options market, but it works excellent for the
Forex market too. It gives you trading messages that tell you when there is the least amount of
risk for trades. This allows you to capture more profitable trades. It also provides you with
Fibonacci indicators to help you gauge when to buy and when to sell.
What are the advantages of trading forex?
You can do it in the background while you have another job. Set your trades in the morning and
evening and let the market work its magic during the day.
There is a very low entry point. You can start trading with as little as $200 with most brokers,
although it’s recommended to start with a very minimum of $400. The more capital you invest,
the more profit you can make. It’s also very easy to lose money in this market, so the key to
success is proper risk management.
How does trading forex differ from trading stocks or futures?
Currency trading doesn’t take place on a regulated exchange like stocks and futures. There is no
central governing body, no clearing houses, no arbitration panel and no one controls major
shares of the market.
There are no limits to the size of your trades, as there are in the futures market. If you have a
few billion dollars to invest, you are free to do so. If you get an “insider tip” that the Bank of
Canada is going to raise interest rates next week, you can buy as many Canadian dollars as you
want and you won’t be prosecuted for trading with inside information.
The market trades twenty four hours a day, five days a week, so there are seldom any gaps in
With an estimated $5 trillion traded daily, the forex market is the largest, most accessible
market in the world.
Do you pay a fee for each forex trade?
There are no fees or commissions in the FX market. Instead of brokers, like in the stock market
and futures market, the forex market operates with dealers. Instead of charging a fee or
commission the forex dealer makes their money on the bid-ask spread. After the trader covers
the spread every pip is pure profit.
Are forex traders buying and selling real money in the currency market?
Not really. The forex market is actually speculative. There is no physical currency exchange
taking place. FX trades are similar to playing a video game, they look real, but they’re just a
computer entry. The money that is won or lost on each trade, however, is real.