How Forex trading works
One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically Over-The-Counter (OTC). This means that you only need a computer/smartphone plus a stable internet connection and our site to keep updated with the latest news.
The market is open 24 hours a day, 5 days a week. Basically, you can live on an island in Indonesia or the Caribbean and trade in a time that suits your lifestyle. (You will study about timing and when to trade later).
Bulls and Bears
What is the first symbol of the financial markets that pops into your mind when you think about Wall Street? Most probably it is the bronze sculpture of the Charging Bull.
Bullish or “Bull market” is when the market is showing confidence currency or stock prices are going up. A bullish trader believes the market will rise. This term is used because when bulls fight, they throw their opponents up in the air with their horns.
Bearish or “Bear market” is when a currency or a stock rate goes down. Bearish traders are the ones who believe that the rate will decrease. When bears fight, they push their opponents to the ground.
This is how you can remember how to distinguish between these two terms.
Going long or short
The main idea in Forex is to buy a currency at a low price and to sell it at a higher price. If you think the price of a currency rate will go up, you click Buy (This is called going long), but if you think the rate will go down, you click Sell (called going short).
Going short might be a little bit confusing. In reality, you need to have the share or the currency and then you have to go to the market to sell it because you think you can buy more, later. Fortunately, the complexity is taken care of by automated trading systems in Forex-Market. All you need to do is to push a button and shorting happens automatically. The process is like: 1-The broker lends you the currency that you want to sell. 2-When the price falls, you pay the broker back a lower price.
You are trading economies of entire countries!
This means, if you pay with USD to buy the pounds, you do it because you believe that the UK’s economy will outperform the US economy.
The price of a currency, in reality, is a reflection of what the market thinks about the current and future condition of its economy compared to other economies.