Forex Explained

Forex Explained

The reach of the internet has opened up the world of Forex trading to the masses and as such the retail forex market is now one of the most competitive areas of financial trading. The number of brokers which now offer a trading platform seems to grow on a daily basis and sifting through the good and the bad is a daunting task especially if you are new to trading. In this section we look to highlight the key points that you should be aware of when selecting a broker.

Forex trading is the process of selling and buying currencies, the term Forex is shortened term for Foreign Exchange. The forex market is the most liquid trading market in the world and has an average daily trading volume well in excess of $5 trillion. It is possible to trade on the forex market 24 hours a day, five days a week from Sunday night through to Friday. The market participants comprise of Governments, central banks, retail investors, institutional investors and currency speculators. At the simplest level a trader will place a forex trade hoping that the chosen currency will move in the direction predicted relative to another currency, be that up or down. For example: a trader thinks that the British Pound (GBP) is going to increase in value against the U.S. Dollar (USD) so the trader places a trade to buy the GBP/USD currency pair. If the British Pound rises the trader makes a profit, if it falls the trader will make a loss. Most people without even realising have carried out a Forex transaction, when you travel overseas you exchange your home money for that of the county you are visiting, the exchange rate that you obtain between the two different currencies is taken from the foreign exchange market.

In the past before the trading on the foreign exchange market was only available to professional traders and institutional investors due to the limited availability of cost effective market pricing feeds.
As the internet revolution gained speed the availability of pricing feeds became cost effective and trading platforms became available to anyone with a decent internet connection. The world of Forex trading is now available to anyone and not just the traders working in big financial institutions. It doesn’t matter if you are a trading guru, or have never traded before; have plenty of time or only a limited amount, forex trading offers versatility and opportunities for every ones different circumstances. Forex trading is popular with:

  • New traders just beginning to trade financial markets
  • Day traders who open and close trades during the course of a day
  • Traders who hold positions for a couple of days
  • Traders who hold positions for weeks or longer
  • People who have a full time job but wish to trade in the evenings
  • People who work part time and are looking to supplement their income

Trading on the foreign exchange/Forex market was in times gone buy only available to institutional investors and traders via professional trading houses, but with the internet revolution the forex market was opened up and there are now hundreds of online brokers offering anyone with an internet connection the ability to trade currencies. Over 90% of all forex trading now takes place on the internet and there are a large number of brokers that offer online trading platforms enabling traders to sit at home and trade at a time that is convenient to them. When trading via brokers you can either manage your trades yourself or you can invest into a managed Forex account and the broker will trade your money on your behalf and take either a monthly fee or a share of the profit. Some of more well known brokers who offer trading platforms are IG, Saxo Bank and eTorro. Another way of trading currency moves which is becoming increasingly popular and simpler for a lot of people to understand is via Binary Options, this form of trading lowers the cost of trading and you just simply predict as to if one currency against another will go up or down over a specific time frame. Many binary option brokers offer demo accounts to enable a new trader to experience this simple trading. One such broker is, they offer a free unlimited no strings attached demo account unlike other brokers who only allow you access once you have deposited funds into a real trading account.

There are many plus points of trading Forex, which is why it is one of the fastest growing areas of trading on financial markets.

The bid/ask spread is typically less than 0.1% under normal market conditions and can sometimes be lower.

The Forex market opens in Australia on a Monday morning to the afternoon close in New York on a Friday and trading is possible 24 hours a day. Allows part time traders to trade at a time that suits them, where as on the stock market there are is a set daily open and close.

The Forex market is large in size and has so many participants that no single entity can control or influence the market price for any extended period of time.

Due to the huge size of the Forex market, it is also extremely liquid and in normal market conditions it is always possible to buy and sell at a click of the mouse button as there will normally be someone in the market willing to take the other side of your trade.

Surprisingly this is true, when compared to other forms of trading such as stocks, futures and options. The deep liquidity which is available in the Forex market allows you to trade on leverage which allows even the smallest of move in the market to be a potential profit. However leverage trading needs to be fully understood as it works the other way and the smallest move could also result in a large loss.

As a new trader you don’t have to be confronted by trading platforms geared up for professional traders, modern day brokers have refined their platforms to cater for new inexperienced traders and the good brokers also offer high quality educational material and they also offer signal services to help you decide when to enter a trade. Another avenue for trading is via binary options and this form of trading is simple quick and can be just as rewarding. offers a free no deposit demo account to allow you to practice trading and build your skills. You will also have access daily market analysis and trading platform guides. If you are new to Forex, we recommend that you start by opening a demo account. Many new traders like to sharpen their trading skills with virtual money before opening a live trading account and risking real money.

The Forex market is the most actively traded market in financial markets, with more than $5 trillion being every day. Traders look to predict the future direction of currencies by taking either a long or a short position depending on if they believe the value of that currency will go down or up.

When trading on the Forex market most currencies come in pairs, for example EUR/USD (euro verses the US dollar) the movement in the exchange rate between these two currencies (pair) is what a trader will speculate on and hope to make a profit.

For example: A trader believes that the EUR is going to strengthen against the dollar and will therefore buy EUR. By buying EUR the trader is also at the same time selling USD on expectations that the exchange price will rise in value. If the trader has predicted correctly a traders profit will rise in line with the increase in the exchange price. When the trader wishes to take their profit (if they have predicted correctly) they will close out their position by selling the EUR. Should the trader have predicted incorrectly in this case they would sell for a loss.

There are multiple ways in which to trade on the Foreign exchange markets:

This allows a trader to speculate on the forex market 24 hours a day. A trading house will usually quote two prices, the bid and the ask price and this is known as the spread. When trading this format a trader is speculating on the movement of a currency pair and do not need to own any currency and is generally used in short term trading.

or contracts for difference allow traders to speculate on currency movements on the Forex Market with no expiry date. CFDs are known as a leveraged product which means a trader is only required to deposit with their broker a small percentage of the full trade value in order to open a new position. This is known as trading on margin.

This is the most used of all Forex trading platforms and was developed by MetaQuotes for online trading in Forex, CFDs and futures markets. MT4 provides traders with tools and resources to enable them to analyze price, place and manage trades and use automated trading techniques.

This form of trading has become increasingly popular due to its simplicity and the know risk reward factors. At a basic level a trader will select if currency will go up or down within a given time frame. When you place your trade you know what your return will be if you select correctly and your risk is the trade size.