As forex newcomers flood the market, differentiate yourself with education in the basics of what that market means. Stand apart and prosper…
Several thousand years BC human society began to to graduate from simple barter of goods and services to payment for such with rudimentary forms of currency.
After all, carting several pigs to the market place in order to buy a piece of cloth isn’t exactly a convenient way to do business. Hence the appearance of early forms of money.
Later on, more and more nation states, kingdoms and other organised societies began minting their own coins.
At the same time, trade expanded beyond borders and these very same national entities began to sell goods to one another.
Hence the need for the earliest forms of foreign exchange, where the currency of one nation was exchanged for an agreed upon amount of the currency of another. Once more, this was much more convenient than shipping several pigs just to buy a piece of cloth.
This elementary interchange of one currency with another is the basis of forex today. Currencies are always paired with one another. For example EURUSD represents an exchange value of Euros for US dollars.
The world’s currencies are traded one for another twenty-four hours a day, 6 1/2 days a week. In contrast to other markets such as the stock market, the forex market has no central exchange. Instead, financial institutions such as national banks, private banks, hedge funds and others provide a highly liquid market via electronic communications networks.
These institutions use the communications networks to trade amongst themselves, and also to provide a means for other interested players – such as we retail traders – to become involved in the international forex market.
It is important for the newcomer to forex trading to grasp the fact that what drives the overwhelming bulk of trading currencies is trade itself.
For example, a large automotive manufacturer in Japan wishes to send a shipment of cars to America. That act of trade will involve substantial transfers across the USDJPY currency pair. It is possible that the both the manufacturer and the American importer will be involved in large transactions in order to enable the shipment to occur, in other words to satisfy payment to the manufacturer and purchase to the importer.
The other large component of foreign currency trading involves the simple endeavour of market participants manoeuvring to make a profit through buying a currency pair low and selling it high, and vice versa. In other words, plain out and out trading of the currency pair. This is an increasingly large factor in foreign exchange.
The next section you may wish to read as a continuing introduction to education in matters forex is 10 First Steps in Forex