Forex Trading - Learn How To Trade The Forex Market
What is Forex?
Forex is short for foreign currency exchange. It can also be shortened to FX but, in essence, it is the marketplace in which currencies are traded. This, of course, is an extremely broad description of it. These encompass something as simple as exchanging your local currency to a foreign one for a holiday trip, or something even more complex!
Forex trading involves the trading of one currency against the other. Similar to other financial markets, the goal in any forex trade is to make a profit.
The forex market is the largest trading market in the world, boasting a daily volume of approximately $6.6 trillion. The global forex market completely dwarfs the world’s equity markets, which trade around $200 billion each day.
In the stock market, a trader will buy and sell the stock of a particular company, such as Amazon or Facebook. However, in the forex market, traders buy and sell currency pairs; a single currency cannot be traded ‘by itself’. Examples of a currency pair are EUR/USD (Euro Dollar), GBP/USD (Pound Dollar) or USD/JPY (Dollar Yen).
Why Trade Forex?
01. Lifelong Skill
Forex trading is a skill that can be developed, mastered, and put to good use. To become a successful forex trader, you must be willing to educate yourself, work hard and adhere to certain guidelines, which we call a trading strategy. Trading will inevitably have its ups-and-downs, but as you develop your trading techniques, you are learning an important skill that will last you a lifetime. As a trader, you will develop attributes such as patience, mental toughness, and adaptability. These traits are certainly beneficial in all aspects of life.
02. Time vs. Money
Every day, each of us must deal with the issue of time vs. money. Time is a finite resource, so when you are paid for your job, you are trading (no pun intended) time for money. The income that you are earning is limited by the number of yours that you work. As a trader, however, your profit on a single trade could be as much as your income from hours of work! Thus, forex trading enables you to increase your money at a much faster rate than if you were working. Trading has its risks of course, but as you develop a successful trading strategy, you will increase your earning potential.
03. Extra Source of Income
It is no secret that many workers do not like their jobs, and it is certainly a blessing if you wake up with a smile as you think about the workday. Even if you do enjoy work, it is always a good thing if you can develop an additional source of income. Do not expect to get rich off forex and quit your day job, even if you pass a forex course with flying colours. At the same time, if you become successful at forex trading, you will have developed an additional source of income and become more financially independent.
Pips, Points, and Ticks
Pip
A pip is the basic measurement used in forex. On most currency pairs, a pip would be referring to the figure in the fourth decimal place (X.XXXX), however on other currency pairs, such as those involving the Japanese Yen, this refers instead to the second decimal place (XXX.XX).
A lot of brokerages now offer quotes to the fifth decimal place, this fifth decimal place is then referred to as a ‘fractional pip’ (X.XXXXx).
Point
A Point is like a Pip; however, it is not used within the Forex Market. It is a term which is used in trading Futures, Commodities, and Indices. Some may refer to a Pip in a currency pair as a ‘Point’, however this is an incorrect use of trading terminology.
Tick
A Tick is the very smallest change that can be measured in a quote. Many markets have different ‘tick sizes’, for instance some markets may have price fluctuations measured in increments of 0.25, while others may have price fluctuations measured in increments of 0.1 or 0.01, all of these would be considered Ticks so long as they are the smallest change possible within that specific market.
Forex vs Stocks: Which is better?
There are many global markets to choose from when it comes to trading; two of the most tradeable markets are Forex and Stocks.
It is particularly important to understand these two markets before jumping in blindly as both markets may follow similar technical trends but are vastly different when it comes to the fundamentals that are behind their market fluctuations, and therefore inherently different when it comes to financial risk.
Below, we will try to briefly lay-out the major differences between these two markets.
MARKET VALUE
From a purely monetary standpoint, the Forex Market is a behemoth when compared to the Stock Market.
The Forex Market’s total world-wide value as of 2019 is worth $2,409,000,000.
The Stock Market’s total world-wide value as of 2019 is worth $90,000,000.
The Daily Trading Volume of the Forex Market as of 2019 is valued at $6,600,000.
The Daily Trading Volume of the Stock Market as of 2019 is valued at $250,000.
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