What is Forex trading?

In its most basic meaning, Forex trading involves exchanging one currency for the other. It occurs in an over-the-counter (OTC) market, which is the world’s largest by trading volume.

The marketplace opens from 22:00 GMT on Sunday until 22:00 GMT Friday. Thus, it is always running round-the-clock on weekdays.

The modern, accessible FX market today resulted from the Bretton Woods system collapse in 1971. Currencies could then float with one another to more easily to form currency pairs.

However, people have since developed ways to exchange legal tenders, goods, and services with foreigners. Hence, the concept of Forex trading has always been around since the ADs.

Significance of Forex Trading
The foreign exchange market is arguably the most famous in global finance for many reasons, like the following:

It helps central banks build the economy through monetary policy.
Multinational companies can conduct seamless international transactions while hedging against losses.
Individuals can profit from the fluctuating exchange rates.
How to Trade Forex
The third significance of Forex trading earlier is why you, me, and almost everyone else is probably here — to make money from the market’s rising and falling prices.

Many people have tried unsuccessfully. However, the successful ones (like my mentor) can even afford to retire early.

So what does it take to be among the latter? When should you expect success? How do you even trade Forex in the first place?

Well… As an aspiring retail (individual) trader, you must first build your overall knowledge of Forex through education articles, books, online courses, mentorships, webinars, etc.

Then, map out your trading goals and get a reliable broker with features that align with them. My friends generally prefer VSTAR because of their low fees, but the choice is yours.

Devise your unique trading plan based on fundamental or technical analyses, and constantly practice in a demo account.

You can fund a live account and start trading real money when satisfied with your demo result.

That’s the basic road map of trading Forex…. but it doesn’t guarantee success.

Fundamental and Technical Analyses In Forex Trading
Remember I mentioned fundamental and technical analyses earlier? Turns out they carry much more weight than I made them sound.

To be a successful Forex trader, you must have a predefined trading strategy that employs either or both analysis methods. Otherwise, you’re basically gambling and not trading.

Fundamental Analysis
Fundamental analysis involves understanding real-world factors that affect the market.

It can be

Political, like the gubernatorial elections
Economic, such as inflation
Social, including investor sentiments
Natural, e.g., earthquake
Essentially, fundamentalists believe any event that is ‘positive’ for a country will boost its currency and vice-versa. So they pore over news reports, economic calendars, social media, etc.

Technical Analysis
Nowadays, most Forex trading discussions, arguments, or signals are from technical analyses. It involves “reading” the charts to observe and understand previous price behavior (action), expecting it to repeat.

You’ll seek patterns, trends, or reactions to key (support & resistance) levels for opportunities.

Thus, technical analysts use charting tools the most. They range from simple trend (straight) lines to complex indicators.

The Thrills and Challenges of Forex Trading
It’s almost impossible to just “walk past” any successful Forex trader, whether online or in the flesh. They seem to be living the dream (obviously) from their flashy cars, high-end gadgets, and designer clothes.

However, there’s no stopping you (or anyone) from achieving such if you remain focused.

I’m not yet a profitable trader, but I’ve been around quite a few to understand the following:

Practice makes perfect: Cliché? I know…… but it’s facts, especially in Forex trading. No one can buy or steal the experience of sitting in front of the charts until it becomes second nature. You will improve if you spend ‘too much’ time demo trading.
Drawdowns are inevitable: I always thought I’d be the special one with the most thought-out trading decisions for zero losing trades… Guess what? I’m not. You won’t be. No one ever is.
You can still be successful with a 30% accuracy.

Consistency over get-rich-quick: Of course, greed is one of the main reasons some Forex traders never make it. If a lottery ticket is what you’re looking for, this hustle isn’t for you.
Popular Terms Used in Forex Trading
If you’re really considering a deep dive into Forex trading, take note of the following terms to stay ahead of the curve:

Broker: The nature of Forex trading must involve two parties — a seller and a buyer. Thus, a broker always acts as your counterparty.
Leverage: Leverage allows retail traders to control a large amount of funds by providing only a fraction. Most brokers express it as a ratio, e.g., 1:100.
Margin: It refers to the portion of funds in your trading balance that keeps positions open.
Orders: Orders are instructions on a trading platform that help traders execute their decisions.
Long and Short: Going “long” means buying a currency pair when expecting its price to increase. Conversely, traders go “short” if they expect the rate to fall.
Pip and pipettes: These are the smallest measurements of value change in exchange rates. Pip represents the fourth decimal, while pipette is the fifth.
Lot: A lot is a unit of measurement specifying the size of a trade. There are standard, mini, and micro-lots.