What is Forex trading about?
A common misinterpretation about Forex trading is that it's about making money.
At its core, Forex trading is about growing money.
It's about (1) understanding what drives currency markets, and (2) growing capital based on that understanding.
If you're a beginner to Forex trading, this guide will get you up to speed quickly.
We won't be spending time going through the unimportant details - such as the history of the Forex market - and will instead focus on the most relevant points so you can get started as soon as possible.
Let's get going.
What is Forex?
Forex is shorthand for Foreign Exchange. It refers to the different currencies used by nations all over the world.
If you've ever traveled abroad and visted a money changer, you've participated indirectly in the Forex market by exchanging one currency for another. This is essentially what currency trading is about.
There are however, a few major differences between the physical exhange of currency notes and online Forex trading.
Money Changer vs Online Forex Trading
The first difference is that with online Forex trading, you don't actually give or receive currency notes. When you "buy" or "sell" a currency, you are merely betting on whether the exchange rate goes up or down. If you guess right, a profit is deposited into your trading account. If you guess wrong, a loss is deducted. You don't actually take possession of the currencies you "buy".
The second difference is that most money changers update the currency exchange rate just a few times a day. With online Forex trading however, the exchange rate (also called the market price) changes much more frequently, sometimes up to multiple times a second.
The third and most important difference is that online Forex trading allows for the use of financial leverage. This allows one to make a significant amount of money with a relatively small amount of capital. Be warned however, that leverage cuts both ways. If you don't understand how it works, you can lose a lot of money very quickly. You can learn more about Forex trading leverage here.