The forex market is a decentralized network of global trade that facilitates the exchange of currencies. It is the largest financial market globally, with an estimated daily turnover worth $6.6 trillion.
It primarily exists to facilitate currency conversion, and it’s open 24/7. For retail traders, the Forex market is only open 24 hours a day only on weekdays.
Foreign exchange is the conversion of the currency of one country into the currency of another country. Say, if you want to exchange the Euro into Pound Sterling, that is foreign exchange.
However, most people understand foreign exchange as the practice of buying and selling currencies for hedging purposes or profits. This is the most popular and exciting aspect of the forex market.
The price at which you convert one currency into another is the exchange rate for that currency pair. For example, if converting €1, you receive £0.89, then the EUR/GBP exchange rate is 0.89.
In a Forex pair, the first currency is the base currency, and the second currency is the quote currency, also known as the counter currency. In Forex trading, the exchange rate is referred to as the price of a currency pair.
Trading The Forex Market
Although forex trading is exciting, it is not something that you can jump into without proper training. However, should you wish to take the shorter route to succeed in forex, there are tools and features that you can use to fast-track the process.
For instance, most forex trading platforms allow traders to use Expert Advisors and trade copiers to enjoy similar success achieved by experienced traders. The Telegram.Forex app provides traders with an opportunity to sample available trading signal service providers and trade copiers.
What Is the Market Structure In Forex?
Unlike the stock market, the forex market is decentralized, which means there is no single organization that opens and closes the market. This also means currency exchange prices vary from one broker/dealer to another.
However, forex market participants can be structured to form a ladder with major banks at the very top, followed by electronic brokerage services. Then you have mid-sized and small banks that rank a tier above retail market makers, retain electronic communications network brokers and hedge funds, and institutional investors.
Retail traders make up the majority of the participants but account for the least volume transacted in a day.
There are three ways of participating in the forex market.
A forward market consists of transactions where two people agree to exchange currencies for future data. Anyone can participate in the forward markets because it is basically like making a pledge, which you must honor when the date for the exchange comes.
These operate like the forward markets, but via a centralized exchange, thus eliminating the risk of default.
Spot Forex Market
This is the most popular way to participate in the forex market. Here transactions are executed at the prevailing market price.
Understanding Forex Market Terminologies
As a retail trader, there are a few Forex market terminologies you need to understand before you start trading:
What Is The MetaTrader Platform?
MetaTrader is a popular Forex electronic trading platform, with the MetaTrader 4 being the most popular version among retail traders. The platform comes loaded with multiple features including charting tools, trading signals, and Expert Advisers (automated trading bots), as well as, news and research portals.
The MetaTrader gives traders access to global financial assets depending on what forex market is open at the time. Assets include commodities, stocks, currencies, and crypto among other tradable assets.
There are several MetaTrader 4 Telegram groups where you can interact with the Forex trading community.
Forex Lots And Lot Sizes
A lot is used to measure the size of the position based on your account’s currency.
|Type of Lot||Size in Account currency|
Let’s say you buy one standard lot of EUR/USD pairs, and your account currency is in USD. In this case, your trade is worth $100,000. In MetaTrader 4 Telegram groups, you will get to learn about how lots work and more.
What Is A Pip In Forex Trading?
In Forex, the pip measures the smallest change in the price of a currency pair. Typically, most Forex pairs are quoted to the fourth decimal place. For example, the price of EUR/USD is 1.1772. Therefore, if the price changes to 1.1773, it means it has increased by one pip.
Calculating Pip Value in Forex
The pip value: The profits or losses made in Forex trading are measured in terms of pip. Different currency pairs have different pip values depending on the size traded. MetaTrader 4 Telegram groups have more information on the different pip values.
Here’s an example of pip values for EUR/USD.
|Type of Lot||Size in Account currency||Pip Value ($)|
What Is The Forex Market Leverage?
Leverage is the amount of money your Forex broker loans you. It is usually expressed in terms of a ratio or multiples. For example, if your broker gives you a leverage of 100X, it means that for every $1 you have, the broker multiplies that by 100. That means you’ll have $100 for trading.
As is with any other financial market, the goal when trading Forex is to go long when you anticipate a rise in the price of a Forex pair; and to short-sell when you expect that the price will fall.
Here’s an example.
Say you have $1000, and you believe that the price of EUR/USD will rise. If you buy one micro lot and the price changes by ten pips, the profit will be $1.
If you choose to use leverage, say leverage of 100, you can afford to open one standard lot position. In this case, a 10-pip change will earn you $100. Note that using leverage also magnifies any losses you might incur.
How do Economic Indicators Affect the Forex Market?
Making money in the Forex market depends on the accurate prediction of price movements. So, how can you do this?
Firstly, note that the exchange rate is influenced by economic events and data such as GDP and employment rate. The release of these fundamental economic indicators is scheduled.
For example, if you want to trade the EUR/USD, you can expect its price to change when the US or the Eurozone releases key economic data. Like the latest interest rate hike, inflation numbers, and production output.
Using Technical Analysis to Day Trade Forex
You can use technical indicators to predict the direction and momentum of the price movements. Sometimes knowing a trend isn’t enough; momentum indicators can also help you see when the trend of a currency pair is dissipating.
While technical analysis can be challenging for beginner traders, Telegram to MT4 EA and Telegram Expert Advisers are custom-made using the various Forex trading technical indicators that will generate a trading signal for you.
There are a lot of moving parts in the Forex market and Forex trading in general. But this article should give you an understanding of what a forex market is and some important terminologies that every beginner trader should be aware of.
However, if you are looking for a shorter route to forex success, most forex trading platforms provide tools and resources like Telegram.Forex, where you can gain access to trading signals or trade copiers.