The Forex market is the international currency market. Forex is an acronym for For eign Ex change market. It is the largest financial market in the world, with a business volume of more than 5.4 trillion dollars a day. To understand what this volume of business means, it is what the New York Stock Exchange (the largest in the world) can move in an entire trading month.
What is Forex trading?
With money. How? Yes, Forex trading consists of buying and selling currencies, coins, that is, money. Currencies are traded through a broker or dealer and are traded in pairs, for example euro and US dollar: (EUR / USD pair).
Nothing is actually bought or sold physically so it can be a bit confusing. Think of buying currencies as buying a stake in a country’s economy, since the price of your currency is a direct reflection of what the market thinks about the present and future state of the country’s economy. In Forex, as mentioned, it is traded in currency pairs, as stated in this paragraph the quoted price of a particular currency pair reflects the economic conditions of a particular country compared to the country of the other currency that makes up the pair .
Unlike other financial markets, the Forex market is decentralized and does not have a physical location. The Forex market is considered an interbank or OTC market (over-the-counter, over the counter), due to the fact that this market works electronically, in a network between banks 24 hours a day.
At the end of the 90s of the 20th century, only investors with high financial power could access Forex trading, with a starting capital of over 10 million dollars. Forex was originally conceived to be used by banks and large institutions. However, due to the expansion of the internet, today there are online Forex companies that offer “retail” Forex trading for retail investors.
What currencies are traded on Forex?
Almost as many as countries or economic communities (such as Europe) exist. These are the most traded currencies:
(The symbols in Forex are always three letters, the first identifying the country and the third the currency)
|USD||American dollar||United States||Buck|
|JPY||japanese yen||Japan||And in|
|NZD||New Zealand Dollar||New Zealand||Kiwi|
Of all the currencies the most traded is the US dollar, followed by the euro, the Japanese yen and the British pound.
When do you trade Forex?
The Forex market is unique, it is open 24 hours a day. From Tokyo to New York, passing through London, the market moves and can operate at any time, day and night.
Opening and closing of the three most important centers (time expressed in GMT time):
- Tokyo : Opens at 0 am and closes at 9.
- London : Opens at 8 and closes at 17.
- New York : Opens at 1 p.m. and closes at 10 p.m.
Main attractions of Forex trading
- No commissions.
- Generally, the trader is not charged with commissions of practically any kind. The brokers through which it is operated charge the spread, typically it represents less than 0.1 percent of the cost per operation, in larger brokers, it may even be less than 0.07 percent, of course, it depends on the leverage, this we will see in more detail later
- Without intermediaries. The Forex market as we refer to in eFXto is the “spot” forex market, which means trading directly with the market.
- Flexible lots. The minimum contract per operation is very flexible in Forex compared to other markets. And you also choose the size of your operation. This allows you to participate with accounts as small as 50 dollars, you can even operate with pennies! (Although it is not good to operate with such small accounts, you will discover it throughout the course).
- 24 hour hours . From Sunday night until Friday afternoon you can trade at any time of the day, even, in principle, there is no deadline for the closing of your operation.
- Leverage. A small sum of capital can control a much larger volume of Forex trading, this is due to the high leverage available in this market. For example, with 100: 1 leverage, you can trade 100,000 coins with a deposit of just 1,000. But this is a double-edged sword, using high leverage can lead to big profits or high losses.
- High liquidity. Being such a huge market, the liquidity it offers is equally enormous. This means that under normal market conditions, you can buy or sell instantly.
- Mini and micro trading. You can start trading Forex with mini or micro accounts that require small minimum deposits, $ 500 or less. This makes it accessible to practically everyone, however, in order to operate with an appropriate risk control, a larger initial deposit may be recommended, you will understand.
How to Trade Forex
Opportunities in Forex: what is your opinion?
As with stocks, you can trade currencies based on your opinions about their values (or the prices you think the currencies will have in the future). However, what sets Forex apart is that you can trade in both bullish and bearish trends. If you think a currency will go up in price, you can buy it. If you think its price will fall, you can sell it. Also, since Forex is so large, finding buyers and sellers is much easier than in other markets subject to liquidity.
To see an example, you may have heard on the news that China is devaluing its currency to attract foreign investment. If you think that trend will continue, you can do a Forex trade: sell Chinese yuan in exchange for another currency, say, the US dollar. The more the yuan devalues compared to the dollar, the greater your earnings. On the other hand, if the yuan appreciates after having been sold for dollars, you will suffer losses and want to exit the market.
Trading Forex. How to buy and sell currencies.
You have your opinion. And now that? Open your free Forex demo platform and trade according to your opinion.
All Forex transactions involve two currencies, since you are betting the value of one currency compared to another. Think EUR / USD, the world’s most traded currency pair. EUR, the first currency in the pair, is the base, while USD is the quote currency. When you see a quote on your platform, the price shows how much 1 euro is worth in US dollar terms. In quotes, two prices are always shown: one for purchase and one for sale, and the difference between them is known as the spread. By clicking buy or sell, you are buying or selling the first currency in the pair.
Let’s say you think the value of the euro will rise compared to the US dollar. This pair is the EUR / USD. Since the euro is the first currency, you would buy the EUR / USD pair. On the other hand, if you think the value of the euro will fall compared to the dollar, you would sell the EUR / USD pair.
If the buy price of the EUR / USD is 0.70644 and the sell price is 0.70640, it means that the spread is 0.4 pips. When the price moves, either in your favor or against you, you have to take the spread into account to calculate your profit or loss.
Fractions of a penny: trading with leverage
If the price quotes go up to the hundredths, how can you make a big profit investing in Forex? The answer is leverage .
When you trade Forex, you are basically borrowing the first currency of the pair to buy or sell the second currency. Because Forex is a market with a daily volume of $ 8 trillion, there is so much liquidity that liquidity providers (the big banks) allow you to trade with leverage. To use leverage, you simply have to set aside the required margin for the size of the trade. For example, if you apply a leverage of 50: 1, you can trade with $ 1000 by setting aside a margin of only $ 20 in your trading account. This gives you much greater exposure for a low investment.
Still, leverage not only increases your potential earnings, but your potential losses (which may exceed the value of your deposit). In short, the higher the leverage, the higher the risk. If you are starting in Forex, it is recommended that you always trade with small amounts and low leverage, until you gain confidence in the market.
Forex investment example
Now that we have given a structural and theoretical review to invest in Forex, let’s see what are the generic steps to invest in Forex. It is possible to use a regulated broker, eg. ex. eToro , which are the most robust option to invest in the currency markets .
- Register on the trading platform where you will trade the Forex market. Visit our list of brokers and their respective reviews to choose the most suitable one according to your needs.
- As they are regulated platforms, these portals are usually required to complete a KYC ( know your customer ) process for each registered user. Thus, you will have to fill out forms with your personal data and upload digital copies of some documents that prove your identity data and, in some cases, residence. Some Forex platforms are more rigorous than others in this regard.
- Deposit funds. Depending on the broker, more or less means of payment will be accepted to add funds to your account.
- Open a trade
- Manage your equity by tracking your Forex position and adjusting your risk levels. You can also set profit and loss cap values at the opening.
How Does Currency Trading Work?
In the past, currency trading was an activity that international tourists did. When a person traveled to another country, they had to exchange their currency for the local currency at the current exchange rate.
However, these days currency trading is a type of investment that has become very popular. Traders can now speculate on changes in the exchange rates of two different currencies.
Trading is both a lucrative and a leisure activity.
Currency Trading for Beginners
Many believe that currency trading is a simple activity that anyone can do. However, the reality is that about 96% of new entrants end up losing their initial capital. Many enter the market with a haughty attitude, saying things like “They lost, but it won’t happen to me.” In the end, they lose all their capital and do not know how it happened, or they believe that they were victims of a scam.
The truth is that currency trading is not a scam, but an industry where those with good knowledge of the sector succeed. Therefore, the goal of new entrants should not be to make money, but to study and understand the market correctly.
One of the biggest problems that beginners face is leverage. This is a tool of the forex market that allows them to transact for amounts much larger than their deposits.
Understanding leverage in Forex
For example, if a trader makes a deposit of $ 1,000 and uses 2: 1 leverage, he will be able to trade up to $ 2,000.
Most brokers offer leverage of up to 50: 1, and many beginners make the mistake of using the highest possible leverage without weighing the consequences. Although leverage may seem like an attractive tool for multiplying profits, it actually involves high risk.
Going back to the previous example, if the trader with the $ 1,000 account uses 50: 1 leverage to make a $ 50,000 trade, each price pip will equal $ 5. If currencies are moving on average between 70 and 100 pips each day, the loss in a single day for this person could be around $ 350.
If this trader has a losing streak, in just 3 days he will end his account balance (assuming normal conditions).
Most beginners are overly optimistic and say things like, “But I can double my entire capital in a matter of days.” Although it is true, few can bear to see price fluctuations. Most new traders think they can do it without a hitch, but when push comes to shove, they find that it really isn’t that easy and they tend to make mistakes.
How to Avoid Errors in Currency Trading
Assuming you can avoid the temptation to use high leverage , you should also keep your emotions in check. Sentiments are one of the worst enemies of currency traders. For example, if you use too high a leverage, your emotions can cloud your vision and make you make costly mistakes.
To prevent these inconveniences, you must create a trading plan that indicates the basic guidelines for making transactions, and write a trading journal to keep track of your progress.
When browsing the Internet, you may think that you are the only person who simply cannot succeed in the forex market. That is not true. It is only your own perception that makes you see things that way. Many have trouble making a profit, but their pride does not allow them to tell the truth. Those are the people who usually visit internet forums or Facebook to post how wonderful forex trading is, when in reality they are experiencing the same problems as you.
To succeed in forex trading, you have to study and focus. Practice first on a demo account and invest small amounts to get started.
Don’t feel bad about your mistakes, and use them to learn and move on. There are many people who fail in Forex for not being honest with themselves. If you learn to be sincere, you will have half of your success assured.
+50 Statistics and Trends of the Forex and Trading Industry since 2017
Are you researching the Forex and Online Trading Industry? Below are some interesting statistics, charts, trends and facts that we found in the Forex market, a market with the daily volume of $ 5.3 trillion.
We have divided Forex statistics into seven sections with interesting statistical data to help you understand what Forex is and how it works.
Forex market size statistics
- The commercial volume of the Forex market is four times that of the world Gross Domestic Product
- $ 5.3 trillion is traded every day in the Forex market.
- More than 85% of global Forex transactions occur in just 7 currency pairs known as the majors (EURUSD, USDJPY, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDCHF)
- If you spend a dollar every second throughout the day, it would take you 31,688 years to spend a trillion dollars. Therefore, to spend $ 5.3 trillion, the equivalent of the value of Forex, it would take you 126,118 years.
- The volume of retail Forex trading represents only 5.5% of the entire Forex market.
- The daily trading volume of the Forex market is about 53 times greater than the New York Stock Exchange.
- Deutsche Bank is the world’s largest foreign exchange dealer with over 21% market share
- There are more than 170 different currencies around the world today that make up the Forex market.
- Forex is the only market that works 24 hours a day.
- The Forex market is the most fluid market in the world.
- The Forex market is 12 times larger than futures markets and 27 times larger than the stock market (stocks).
Forex Market Statistics
- The US dollar is the most widely traded currency, being part of almost 90% of global operations.
- In May 2017, there were more Google searches around the Bitcoin business than there were for searches on the gold or oil trade, according to Google Trends.
- The situation is reversed in mid-2018, when the trend of searches on the forex market increases with respect to that of BTC. This after a severe downturn in the digital currency industry.
- The GBP / USD is known as the “wire”. Why do we have that name? Simply because, before the creation of global communication satellites and fiber optic technology, the London and New York Stock Exchanges were connected by a giant steel cable, immersed in the Atlantic Ocean.
- The British Pound (GBP, 11.8%) is the fourth most traded currency.
- The euro is the second most traded currency (33.4%).
- The Japanese yen (JPY, 23%) is the third most traded currency
- The Australian Dollar (AUD 8.6%) is the fifth most traded currency
- The Swiss franc (CHF, 5.2%) is the sixth most traded currency
- The Canadian Dollar (CAD 4.6%) is the seventh most traded currency
- The Mexican peso (MXN 2.5%) is the eighth most traded currency
- Chinese Renminbi (CNY 2.2%) is the ninth most traded currency
- New Zealand Dollar (NZD 1.4%) is the 10th most traded currency
Forex Market Technology Statistics
MT4 is the most popular Forex trading platform in the world. Its closest competitor is the MT5, which as the name suggests, is also built by MetaTrader. Read more about MT4 and MT5 here.
- About 35% of traders looking for a broker use a mobile device or tablet.
- Operators prefer Android over iOS. 56.1% of merchants have an Android phone, while 41.8% use iOS. Samsung is the most popular brand among merchants using Android.
- 90% of successful Forex traders these days use robots (sometimes called ‘ expert advisors ‘) to help them make money.
- In binary options trading, each exchange lasts less than 10 minutes to a maximum of 19 minutes.
- 85% of merchants use Windows Desktop.
- Automated trading began in the Chicago merchant market as early as the 1970s, but became common with retail around 1999, when online retail platforms began to appear.
- 60% of all Forex transactions take place in both the UK (41%) and the US (19%).
- 32. The 5 most popular interest rates according to research are: EUR / JPY , EUR / GBP , EUR / CHF, GBP / JPY and GBP / CHF.
Statistics as a Forex Trader
- A recent research study conducted by PhD. Researcher John Forman reveals that 99.6% of retail Forex traders are unable to achieve more than 4 consecutive quarters. Successful strategy or not, losses are apparently inevitable.
- There has been an increase in the number of female merchants – 46% more women opened accounts in January – March 2015 than in January – March 2014. Despite this, women still represent only 10.9% of all merchants , according to our research here on eFXto.
- Traders are starting at a younger age. 43.5% of merchants in 2017 were between 25 and 34 years old. This is an increase of almost 1% compared to 2016.
- Some banks are known to allocate up to 20-30% of their funds to the Forex market and generate 40-60% of their total profits through trading currencies. This is by far his most lucrative endeavor.
What is Forex and its history?
- The gold standard was established in 1880, the year that many people hold as the beginning of modern Forex. The amount traded on Forex increased by 10.8% between 1899 and 1913, but gold holdings experienced an increase of only 6.3%. Clearly, foreign exchange began to gain more and more strength.
- It was the Bretton Woods agreement that gave way to Forex trading. Before 1971, speculation in the currency markets was not allowed and hardly anyone knew what Forex is.
- The world’s first real “bank” was Monte Dei Paschi di Siena founded in 1472 in Tuscany, Italy, and is still in operation today.
- In 1913, almost half of the international currencies were traded using the British pound. While the British pound was the main currency in Forex trading, the most active centers were New York, Berlin and Paris. London, for the most part, was not a major player in the commercial world until 1914.
- While we think of currency markets as a relatively new invention, money changers were first mentioned in the Talmud, dating back to biblical times. Money changers charged a commission, of course.
- Surprisingly, the Forex markets were forced to close sometime during 1972 and March 1973 due to the ineffectiveness of the Bretton Woods agreement and the European Joint Float.
- During the 17th and 18th centuries, Amsterdam maintained an active Forex market. The exchange took place between agents and merchants acting in the interests of their respective nations, England and Holland.
- The Federal Reserve of the United States only came into being in 1908. Before that, any American bank could issue its own money.
Forex Broker Statistics
- The largest company in the industry is IG Index, which is listed on the London Stock Exchange with a market value of around £ 1bn. It now has more than 72,000 clients around the world, making approximately one million transactions a month – more than 90% of them online.
- Approximately 90% of spread betting trades are buy positions.
- Binary options usually pay around 80% if you win, and only return around 10% if you lose. Add 80% + 10%, and you will get 90%, with a gap in favor of the broker.
- IG reported an 18% increase in third-quarter revenue as traders speculated more due to increased stock market volatility (March 2016).
Statistics on the spread of betting in the UK
- According to the Financial Times, the profile of the average to the best diffusion is still blank, male, middle-aged and professional. Although IG Index says that about 3,000 people open an account with them every month, spread betting is not a common activity yet.
- The benefits of spread betting is currently free from capital gains / income tax in the UK. In other words, financial spread betting works the same way as Forex works.
- Around 92,000 people in the UK were gambling broadcasters in 2012. About 35,000 people stopped gambling in the UK in the year to July 2012 (compared to 32,000 in the same period in July 2011), while around 23,000 merchants switched suppliers. Growth during the period 2009 and 2012 has been modest with only 9,000 new operators.
- According to research specialist Investment Trends, the number of betting clients rose to 88,000 in November 2011 from 83,000 in October 2010, while trading CFDs reached 26,000, up from 25,000.
- Financial gambling has been around in the UK and Ireland for some 40 years but has seen an impressive rise in popularity in the last decade.
Does anyone really make money on Forex?
There is no definitive answer to this question, however, most sources agree that a minority of traders achieve profitability when trading Forex currencies. The sources and regulated brokers differ in statistics, but it is generally said that between 10% and 30% of users who trade Forex make money and close successful trades.
This is mainly due to a lack of experience in the market and the use of tools that increase exposure (eg high levels of leverage) and a lack of planning when conducting your operations. Thus, documenting yourself, going step by step, starting with demo accounts and having a sufficient understanding of risk management are factors of great importance for your operations to be successful. In general, as with any other investment trading market, the risk is high, but the answer is short: Yes, definitely! There are many successful traders, but they are only those who know how to combine multiple factors such as fundamental analysis, technical analysis, risk management, monitoring of economic calendars and news, among others.