What is Forex (FX, Currency Markets)?
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling, and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the credit market.
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency’s absolute value but rather determines its relative value by setting the market price of one currency if paid for with another.
According to the Bank for International Settlements, the preliminary global results from the 2019 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $6.6 trillion per day in April 2019. This is up from $5.1 trillion in April 2016. More info at Wikipedia
Quite simply, it’s the global market that allows the exchange of one currency for another.
If you’ve ever traveled to another country, you usually had to find a currency exchange booth at the airport, and then exchange the money you have in your wallet into the currency of the country you are visiting.
Forex is the largest capital marketplace in the world. Featuring more than $5 trillion in daily turnover.
The forex is a digital trading venue where speculators, investors, and liquidity providers from around the world interact.
The currency market is around 200 times BIGGER than NYSE! It is HUGE!
The forex market is open 24 hours a day and 5 days a week, only closing down during the weekend. So unlike the stock or bond markets, the forex market does NOT close at the end of each business day. Instead, trading just shifts to different financial centers around the world.
The day starts when traders wake up in Wellington, then moves to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally, New York, before trading starts all over again in Wellington!
It is important to build an educational foundation before jumping in with both feet.
For those new to global currency trading, it is important to build an educational foundation before jumping in with both feet. Understanding the basic points of the forex is a critical aspect of getting up-to-speed as quickly as possible. It’s imperative that you’re able to read charts, quantify leverage, and place orders in the market.
All forex trades involve two currencies because you’re betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell price. The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
Let’s say you think the euro will increase in value against the US dollar. Your pair is EUR/USD. Since the euro is first, and you think it will go up, you buy EUR/USD. If you think the euro will drop in value against the US dollar, you sell EUR/USD.
Currency trading was very difficult for individual investors prior to the internet.
Most currency traders were large multinational corporations, hedge funds or high-net-worth individuals because forex trading required a lot of capital. With help from the internet, a retail market aimed at individual traders has emerged, providing easy access to the foreign exchange markets, either through the banks themselves or brokers making a secondary market. Most online brokers or dealers offer very high leverage to individual traders who can control a large trade with a small account balance.
Traders especially those with limited funds, day trading or swing trading in small amounts is easier in the forex market than other markets.
A focus on understanding the macroeconomic fundamentals driving currency values and experience with technical analysis may help new forex traders to become more profitable.
Learn to trade our Strategy
Our Strategy focuses on supply and demand, market sentiment, momentum and Order Traps (Stop Hunts and Fakeouts)
Supply And Demand Trading
As supply and demand traders, we do not need to pay attention to the news, fundamentals or any earnings reports. Why is it that you see positive News and then the underlying market drops like a rock, or a negative news announcement and the market rallies? You are probably missing the fact that there big institutions are trying to make money!
Unless you are doing very short term trading and scalping, you should not worry about fundamentals or earnings announcements.
You can use these imbalances to plan your trades in lower timeframes. Trading is just waiting for the right trigger points and scenarios to present themselves. We need to patiently wait for the correct scenarios and setups to happen and wait for the price to react from our levels and we can take advantage from these moves!
If you want to learn how to trade using our trading strategy, join our Price Action Trading Course.
What are Fakeouts (Order Traps, Stop Hunts)?
First things first, before you can learn our strategy you have to understand how to use order traps to your advantage, you have to know what they are and how to identify them.
Order Trap ( Stop Hunts, Fakeouts ) are terms used in technical analysis to refer to a situation in which a trader enters into a position in anticipation of a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.
Order Traps are when a trader puts on a position expecting it to move in a direction and it fails to do so.
Stop Hunts happen when many traders plan their exit by offsetting orders to make sure their potential losses are limited
Stop Hunts can cause considerable losses for a technical analyst. These traders will typically rely on well-tested patterns, multiple affirmations of an indicator, and specific allowances to protect from significant losses. Sometimes the setup can look perfect, but outside factors can cause a signal to not develop as planned.
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