What is Forex – Ultimate Guide

by May 25, 2020Forex Trading for Beginners

What is Forex is common question so let me answer that for you.

Forex for retail traders, and that is you and me, is a place where you make money by predicting where the price of a currency pair will move. If you predict correct way you make money and if you predict wrong you lose money.

This tutorial is written for anyone who wants to know what is Forex trading for beginners. Learning takes time because the Forex is a large place with many unknown terms to common people.

If you are a beginner this tutorial about what is Forex will help you understand what Forex is, its definition and what you can do on the Forex.

I will show you what is Forex in basic terms and later on how you move forward I will show you more complex terms that professionals use in their trading analysis.

If you do not know anything about Forex you will learn step by step all that is needed to know.

If you know something about Forex, this tutorial will enrich your current knowledge with new knowledge through examples I will show you. Those examples are based on the real situation on the Forex so you can be sure that you will encounter the same situation and you will be ready for it.

What you need to have when you start reading this tutorial is time and willpower. Those two things are only necessary to comprehend this interesting area in financial markets.

What is Forex

While you are here you want to know what is Forex in simple terms as possible. There are a lot of articles about Forex where authors describe Forex as a place where exchange of currencies is held.

Even that is true, for beginners in the Forex who want to know more about making money that information is not so important.

That is why I will skip writing in depth about Foreign Exchange Market aka Forex but I will focus more on simple terms needed for Forex trading.

Forex Meaning

But before moving forward on the terms you want to know I need to cover some area about Forex so you understand what Forex means.

As I said earlier Forex aka Foreign Exchange Market, is a place where many companies, banks and people are exchanging their money. That means they are exchanging one currency for another.

You know that you need to bring money with you if you are traveling to France. If you are from the U.S. then you need to have Euro currency to pay expenses while traveling through France.

To make that happen you need to go into exchange and make conversion from U.S. dollars into Euro.

In order to explain to you what Forex is and what does Forex means I have made one article that will reveal all that you need to know.

The article “what does Forex means” explains what Forex is,  how did the Forex word become word for Foreign Exchange Market and what is Forex meaning in English.

What Does Forex Mean - cover

Forex Industry

As explained, Forex is a place where currencies are exchanged. While money is exchanged between many participants and I am talking about the largest sum of money you could think of, the Forex is also called the Forex industry.

Industry is a branch where many companies find their interest to make money. Are those banks or private funds or common people like you and me, it is the industry where the money is made.

Because it is so large all those participants are regulated in some way with laws in each country where the money is exchanged.

For more details I have made an article about Forex industry that will show you what is:

  • Forex Industry
  • what are Forex industry rules
  • what are Forex industry trends
  • Forex industry services
  • size of the Forex industry
  • worth of Forex industry
  • Forex industry news and
  • Forex industry Scams

Forex Market

Now it is time to start reading more about Forex where you can find your place and make money.

First lets take a look who are the participants so you can easily follow next part of the article.

  • Major banks
  • Electronic Brokering Services(EBS)
  • Medium size and small banks
  • Retail market makers
  • Retail ECNs
  • Hedge funds and commercial companies
  • Retail traders

On the upper side of the Forex you see large banks who holds most currencies.

On the next level we have hedge funds, retail market makers and retails ECNs who make transactions through commercial banks.

Because all mentioned participants are on the second level they have worse rates compared to top level banks. If you want to have best rates you see where you should be, on the top level.

On the bottom are we, small retail traders who trade over retail market makers, also known as Forex broker. While we are at the end we pay higher rates when trading currencies on the Forex but those rates are acceptable.

Many brokers are fighting for customers and everyone is looking to lower the rates in order to attract new traders.

Forex as any market allows sellers or buyers to make a purchase. Through that purchase you can buy or sell something.

Will you make money by selling or buying, it is up to you.

While common market where you buy groceries is a place where you usually spend money, Forex is the a place where you can make money. And, of course, lose money if you make wrong decisions.

How do you make money and how do you enter into the Forex is easy thing to do. Maybe you are not familiar with steps needed to enter into the Forex but now you will learn a little more about Forex.

You need to understand how the Forex functions and who are the participants on the Forex market.

Read more: All About Forex Market

Forex market average daily turnover

What is Structure of the Forex Market

Now it is time to start reading more about Forex where you can find your place and make money.

First let’s take a look at who the participants are so you can easily follow the next part of the article.

  • Major banks
  • Electronic Brokering Services(EBS)
  • Medium size and small banks
  • Retail market makers
  • Retail ECNs
  • Hedge funds and commercial companies
  • Retail traders

On the upper side of the Forex you see large banks who hold most currencies.

On the next level we have hedge funds, retail market makers and retail ECNs who make transactions through commercial banks.

Because all mentioned participants are on the second level they have worse rates compared to top level banks. If you want to have the best rates you see where you should be, on the top level.

On the bottom are we, small retail traders who trade over retail market makers, also known as Forex brokers. While we are at the end we pay higher rates when trading currencies on the Forex but those rates are acceptable.

Check the article where is explain in more details who are Forex participants.

Forex market structure

Forex Trading Time for Beginners

From Monday to Friday – that is the time period you can trade on the Forex.

But, there are other things you need to pay attention to when trading. As a beginner in trading you will see that there are few main trading centers in the world that have a large impact on trading.

Now it is time to read more about Forex trading.

When you decide to trade on the Forex market you will have times when the market is open for trading and when it is closed. Read more when you can make money and when it is time for resting in the article Forex Market Hours.

Forex market hour

What is Spot Forex

Forex spot refers to the price of the currency at the time you see it on the trading platform.You can visualize it like “price at the spot”.

You will encounter someone says that settlement for spot market takes 2 days for most currencies. Settlement means that currencies change their owner. 2 days is referred to brokers and financial institutions not for us small individuals who trade over broker.

Because of brokers, who are market makers, settlement for us traders does not last two days because brokers take both sides of the trade. This way, our trades and our account balance is updated instantly when we open and close order.

On the Forex spot market currency pair is traded immediately by current market price. There is no waiting time for exchange price until contract expires. Trade is executed in milliseconds and trading is very simple and fast.

Reading the article what is Spot Forex you can learn more about order execution type and about Forex Futures and Option market.

Forex Spot Market Exchange

Conclusion

This was all what you need to know at the start as the basics about Forex. You now know what is Forex and who are the participants.

To start on the Forex you know what are the basic terms which will help you understand how to make money.

“Disclosure: Some of the links in this post are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. This does not cost you anything extra on the usual cost of the product, and may sometimes cost less as I have some affiliate discounts in place I can offer you”

Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners. Market analysis is featured by Forex Factory next to large publications like DailyFX, Bloomberg... GetKnowTrading is becoming recognized among traders as a website with simple and effective market analysis.

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