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Forex – Foreign Currency Trading 101

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Forex Trading is trading currencies from different countries against each other. Forex trading is typically done through a broker or market maker. Forex trading is risky and only those who know how to do it, can be profitable. Forex trading is easy, but making money Forex Trading is not. The Foreign Exchange market, also referred to as the “FOREX” or “Forex” or “Retail forex” or “FX” or “Spot FX” or just “Spot” is the largest financial market in the world, with a volume of over $4 trillion a day.


Trading Forex can be done online by the private investor anywhere in the world at any time of the day. Trading is a skill, and like any other skill, it needs to be practiced and practiced in order to be perfected. Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. Trading is done over three continents, allowing a trader to trade continuously and to react immediately to events and new developments.


Currency traders make decisions by either analyzing technical factors or economic fundamentals. Currency movements are measured in “pips” or fractions of a decimal point depending on the currency involved. Currency prices can only fluctuate relative to another currency, so they are always traded in pairs. As a forex trader you can choose a currency pair that you expect to change in value and place a trade accordingly.


In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to the other countries’ economies. The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time. When introduced to the available leverage and extreme flexibility that foreign exchange trading offers, it becomes clear to the new trader why forex currency trading should be a part of almost any portfolio.


Prices are always quoted with both bid and offer prices ( Buy EUR/USD 1.2000, Sell EUR/USD 1.2003). When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy. A spot market is any market that deals in the current price of a financial instrument. Unlike share prices which are determined by the performance of the companies, currencies prices are affected by a myriad of factors. Forex trading is highly speculative in nature which can mean currency prices may become extremely volatile. As such, the Forex market offers opportunities for huge profit potentials that are derived from volatilities of world currency prices.

Forex trading is one of the most fast-paced types of trading activities that you could get involved in. Forex trading is probably one of the biggest ways to make money online today, in fact many an entrepreneur is looking to forex trading as a means of making an extra income online. The Internet is awash in foreign exchange currency trading websites whose sole existences are dependent upon ignorant forex investors.

Forex Trading is not for the faint hearted, and you should treat it like gambling, don’t gamble with money unless you can afford to do without it.

Richard P James

All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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