What is Forex and is it possible to make money on it
In this article, we will talk about the global Forex currency market – we will determine its essence and get acquainted with some basic concepts.
Differences of the forex market from other giants of the financial world
The whole variety of economic markets can be represented in the framework of three main components:
Exchanges where goods and raw materials are sold;
Stock exchanges – there is already trading not in goods, but in securities, each of which has its own abbreviated name and changing price;
Forex is a currency exchange – here money is bought with money.
What makes Forex different from other markets? A number of elements can be distinguished:
Forex does not have a trading platform. Any stock or commodity exchange is localized in a certain city, for example, there is the Chicago or London stock exchange, while Forex is traded on an interbank market.
Since there is no platform, there is no time for opening / closing trades: currency transactions can be performed around the clock on any days except Saturday and Sunday (an important point – it is not always wise to leave open positions on weekends).
Volumes in the Forex market are tick, not monetary, the difference can be easily explained using an example: if on the stock market with monetary volumes three transactions are made for one dollar and one for one hundred dollars, then the volume will be 1 + 2 + 3 = 6; on Forex, the moment of the transaction will be taken into account, and the volume is simply ignored: 1 + 2 + 3 = 3. This is more of a disadvantage than an advantage, since many profitable trading strategies cannot be applied.
When making a transaction, a trader in the Forex stock market must pay a commission in percent, the commission is charged both at the opening and closing of the trading position. On Forex, not a percentage is paid, but a spread: you need to pay it only once at the opening of the transaction.
The trading conditions on the Forex spot, that is, the calculation is carried out one day after the transaction.
You trade through leverage – this allows you to start making transactions even with a small amount of initial capital.
In order for the answer to the question, what is Forex, to be complete, we must determine who makes financial transactions here. All participants are divided into majorities (the largest, capable of developing trends in price movements for certain assets) and minority shareholders (as a rule, these are individuals or small firms). Majority groups include Central Banks of various countries that monitor the dynamics of changes in their currency, influential brokerage houses, investment funds, and so on.
There are several methods for making trading decisions in Forex and other markets, and we will give them a brief description:
Graphical analysis – the forecast of price movement based on graphical data, the study of reversal patterns and the continuation of the trend, drawing support and resistance lines, and so on;
Indicator analysis in the Forex market – you need to configure the indicator so that it tells you when to buy and when to sell currency;
Forex news analytics – the price often changes due to expected news, their tracking allows you to successfully trade and make good money.
The first two methods belong to the category of technical analysis, the latter represents a huge direction of fundamental analysis.
So, we have listed the main differences between the foreign exchange market and other components of the economic system.