What is Forex Trading ?

Hi Everyone,

I am starting a series of bite size educational post to give you a better understanding on the Forex markets and the mechanics behind it.  This is the first of the series of posts from Forex100 Academy.  If you find the information useful, just give us a thumbs-up, drop us a PM, #askForex100 anything. Let’s get started !!

 

What is the meaning of Trading ?  (Source Wikipedia)

Trading involves the transfer of goods or services from one person to another, often in the exchange of money. A system of a network that allows trade is called a market.

Well… I am no historian but I believe the first form of trading that existed was barter trading. No no… not the butter you spread on the bread, but barter as in exchanging goods for another type of goods. Swapping the apples that I grew in my orchard for the wheat that you have sowed on your land.

 

Eventually, barter trading evolved into exchanging goods for money or currency. Of course, at the beginning, it started with bronze, copper, silver and gold shillings. It has now evolved to the modern currencies that we know today, for example, the US Dollars, British Pound,  Japanese Yen, Singapore Dollars etc… just to name a few.

 

 

What is the meaning of Forex?

It is actually short Foreign Exchange. In another word it means currency or money.

Hence the Forex Market is a place where you can buy and sell the currencies of the world.  The Forex Market is opened 24hrs, 5 days a week. Using Singapore timing,  the market starts on Monday morning (5am) and closes on Saturday (5am), this is when the US market closes for the weekend.  (Note: the market will adjust to daylight savings)

 

Financial Time Zones (Singapore time: GMT +8)

Asian Time Zone – (5am to 3pm).  The major financial centres include Tokyo, Sydney, Hong Kong, Singapore

European Time Zone – (2pm to 12 midnight).  The major financial centres include London, Zurich, Frankfurt

US Time Zone – (8pm to 5am).  The major financial centres include New York, Chicago

 

Let me turn this around and ask you this question,  “Have you taken part in Forex Trading before?”

You would most probably have traded before, but just not aware that you have done so. Have a look at this photo below.

 

If you have gone for a holiday overseas or even to our neighbouring country Malaysia, you would have participated in Forex Trading before.  You would have exchanged your Singapore Dollars into Malaysian Ringgit or HK Dollars or US Dollars etc. I would classify this exchange as the most basic form of Forex Trading.  Trading one currency for another.

Now in the financial markets, the buying and selling of the financial instruments have gone electronic. With the modern platform made available by the brokers, all you need is an internet connection to your broker’s platform. You are ready to trade the Financial Markets.

 

Currencies

The currencies we trade are the most commonly traded in the market, as in they are the more liquid currencies. This means that if you decide to sell, there will be enough buyers in the market to take the currency off your hands.

The currencies we trade and share here on our posts are the :

Major currencies : USD – US Dollars, EUR – Euro Dollars, GBP – Great British Pound, JPY – Japanese Yen and the CHF – Swiss Franc

Commodities currencies : AUD – Australian Dollars, NZD – New Zealand Dollars and CAD – Canadian Dollars

 

Explaining Concept of Forex Pairs

As I mentioned earlier…. in Forex trading, we are exchanging one currency for another.  Hence the instruments are quoted in pairs. For example USD/JPY that means you are trading the US Dollars versus the Japanese Yen.

Buying USDJPY –> we want the pair to move up

Selling USDJPY –> we want the pair to go down

 

Stay tuned for my next educational post on the “Who” in the Forex Market.

 

If you find this post useful, please give us a like and follow us on Facebook

 

 

 


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