Forex trading is a fancy name for currency trading. Forex is short for Foreign exchange market and it is the market where bank and large institutions buy and sell currencies. It is the largest market in the world. Trillion dollars worth of currency is traded on the Forex market. It is the Forex market that decides the value of a currency and how much you have to pay if you want to exchange money when you want to go on vacation.
The Forex market used to be closer for retail investors but the market has now been opened up, and you can trade on the market by getting an account with a Forex broker.
How does the trade work
All trade on the forex market is based on currency pairs. Y buy one currency and sell another. USD/GPB is an example of a currency pair. This is the pair you trade if you want to convert USD into GBP or GPB to USD. There are a lot of different currency pairs that can be traded but only about 10 pairs are popular among traders.
The value of the GBP in relationship to the USD (and other currencies) is always fluctuating. It goes up and down based on psychological, political and macro economical factors. The value of each currency pairs change hundreds of times every minute. If you trade on the currency market your goal is to make money from these small fluctuations. You can also try to make arbitrage profits by finding disparities in value between different currency pairs. This used to profitable a long time ago, but automatic trading has all but eliminated all possibilities to earn money from this type of disparity. Trading robots eliminate any differences within milliseconds. To fast for a human to react. The way to make money is, therefore, to successfully predict fluctuations in the currency price.
To be able to make money on the Forex market is hard work. You will compete against professional traders who spend all days analyzing the markets to be able those who earn the profits. The most common way to analyze the market is to use automated tools to perform technical analysis. The TA helps you find opportunities but you will have to act n them yourself. Commercially available trading robots are seldom (read never) able to consistently earn money.
Ou will need to put in the hours if you want to trade o the Forex market. You can make a lot of money but it is not for everyone.
The fluctuation on the FX market is usually very small. There are exceptions from this. An Example of this is that the Argentinian Peso in 2019 lost more than 15% of its value in one day. Most changes are thousands of a percentage of even smaller. The very small changes make it hard to make money without leverage, and most traders, therefore, use leverage. Some traders use very high leverage. Most traders use leverage of x250 or less, but there are traders who use x500 or more.
Many brokers have stopped offering very high leverage since people were loosing too much making leveraged trades without understanding the risk The EU limits how high leverage EU brokers are allowed to offer.
Leverage is a great tool, and I recommend using it. But do so responsibly and make sure to use stop loses to limit your potential losses.
Forex trading with leveraged products is extremely high risk, and I do not recommend that anyone do it unless they are willing to devote the time and energy to learn how to do it right before they start trading using real money. Many brokers offer demo accounts where you trade using virtual money. I recommend that you start trading using this. DO not start trading for real money until you are ready. I traded in the demo account for 6 months before I made any real trades. I recommend that you make sure that you have at least 4 profitable weeks in a row before you start trading using real money.
Forex trading is not a scam. It is the largest market in the world. But there is a large number of scam brokers on the Forex market. It is therefore very important that you chose a well regarded established brokers such as eToro, Plus500, Markets.com, or AVAtrade.
Never, ever register with new or unknown brokers that offer huge leverage or huge bonuses. They are likely a scam.