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Beginner’s Guide

15 facts about Forex Trading

The world is immensely involved in forex from professionals to beginners. There is a vast of information about forex trading and some of the great sites to help you understand forex even better – such as BaBy Pips.

Here are the outlined 15 facts about Forex Trading. 

1. Foreign Exchange is often referred to as Forex

The world’s most used term in the Foreign Exchange Market is Forex, and is abbreviated FX. The most basic fundamentals of Forex is buying and/or selling of currency pairs. The word FOREX is derived from the words “FOR”eign “EX”change – one currency is exchanged for another.

Forex Trading is also referred as FX, Exchange Market, and Market Maker (More names may be added)

2. Forex Trading is a high risk investment and needs discipline

FX is not suitable for everyone as it involves high risks, especially that with leveraged trading.

Because of the high risks involved one need to be highly disciplined and consistent to be able to handle the pressure that comes with trading.

3. One can profit from the profit in the forex market

A whole lot of people make money with forex on a daily basis. It is possible to profit and be financially free.

It may take a whole lot of training before you can fully understand how the market works, people do spend hours learning forex, whereas others attend forex academies to learn more about FX.

4. Leverage gives you an advantage

The ratio of invested amount relative to the trader’s actual equity / deposited funds is known as leverage. (Learn more about leverage)

5. Forex involves spread which is the difference between BUY and SELL or BID and ASK

The difference between the ASK PRICE and the BID PRICE is known as the spread. “Brokerages typically increase the spread they receive from their market providers as compensation for their service to the end customer, rather than charge a transaction fee.” (Learn more about Spread)

6. There are different types of trading platforms such as Metatrader

Brokers use Metatrader platforms such as MT4 and/or MT5; some uses Web trader platform, whereas other brokers have their own platform to use at their terms.

7. Forex Market Analysis makes use of Fundamental and Technical Analysis

Fundamental:-, factors affecting forex currency movements, namely: economy, politics and social – and you should know that news has as much potential to affect currency value as with government decision, interest rates and much more.

Technical Analysis – Analyzing pattern movements in the market by traders across the globe

8. Forex has an unlimited number of Indicators

Some of the indicated covered on iBusiness are:

9. There’s a huge difference between Forex Trading, Binary Options, and Bitcoin

  • Forex Trading – The name Forex is derived from the words for(eign) ex(change). It is often abbreviated FX, and at times referred to as the currency market. FX is a global decentralized market, often referred to as OTC (Over-the-counter) for the trading of currencies. (Learn More)
  • Binary Options – This is a type of option which has a fixed payout in which you predict the outcome from two possible results, either up or down.
  • Bitcoin – Created in 2009, used to purchase items from companies supporting bit coin, it has been accepted as digital currency.

10. The minimal traded amount for each currency transaction is known as a Lot

A regular account’s one lot equals 100,000 units of the base currency.

11. Forex profit and losses are calculated in Pips

Pips are usually the last two digits behind the decimal of a currency quote. Pips are also referred to as points – these points are the difference between the selling price and the buying price – and this is also said to be a spread.  The pips can come up positive or negative.

12. FX has a range of different Signals offered by a number of different groups and individuals

Signals are systems used by forex traders worldwide in helping them make decisions about their trades, and it is often advised to thoroughly make research about signals you may be interested to use and also figure out if they make use of take-profit and stop-loss configurations.

13. The Market needs to be studied for thorough understanding

The foreign exchange market involved all the aspects of selling and buying, and exchanging of currencies at current prices, at times determined prices. It is often referred to as FX, short for Forex. The Currency Market’s Forex name comes from the words “Foreign Exchange”.

14. EUR/USD is the most traded pair

Learn about quotes in forex

15. Pips, lots and leverage work hand in hand

Factors affecting Pip calculation

Bonus Facts about Forex

  • Traders make use of a broker for trading access
  • There’s a lot of scams in the market
  • Demo Account is used for training
  • Real Account is used for trading
  • Foreign Exchange Market makes use of strategies
  • Forex has different types of charts (Line, Bar, and Candlestick)
  • Candlesticks are easier to understand in forex charts
  • Price movement is effected by 3 factors (Economy, Politics, and Mindset)
  • The Forex Market was established in 1971
  • Forex closes on weekends
  • Forex is a highly liquid market with high transparency
  • Traders can follow an economic calendar to help them with trading decision
  • In Forex, you can profit from falling and rising markets
  • Forex Is traded in pairs
  • US Dollar is the world’s main currency (Major Currencies)
  • Euro is the 2nd most traded currency whereas Yen (Japanese Yen) is the 3rd
  • Buying in forex means buying a currency pair to open a trade
  • Selling in forex means selling a currency pair to open a trade
  • Forex makes use of ‘Margin’ as collateral for a position (Security Deposit)
  • Introducing Stop Losses can potentially prevent disastrous losses
  • The trading plan is a blueprint for trading success
  • Confidence is a necessity when trading
  • Hedging technic is used to lock in an approximate future price (minimizes the risk of exchange rate fluctuations.)
  • Forex is a 24 hour a day market
  • Keeping a detailed trading notes/diary builds a trader
  • Patience is key in forex, regardless of what you’ve heard
  • You can automate your trades
  • Currency Trading is commission-free
  • ‘Take Profit’ is one of the beneficial techniques
  • Greed can lead to disaster
  • There are different types of traders
  • In forex, the first currency in a pair is a Base Currency (Primary Currency), whereas the 2nd is the quote currency (Secondary Currency)
  • Trading vengeance and emotions may lead to huge losses
  • There are millions of traders around the world at a very high failure rate
  • Trading Stress is something to get used to
  • Setting realistic goals will lead to a successful trader
  • Forex can be very beneficial when making your own trades
  • Brokers make their money through spreads
  • You may miss out on an opportunity if you trade when forex news or statements are due out
  • Mastering one currency at a time for technical trading refines your trading
  • If a pair is going up is not in itself a reason to buy
  • Before execution, it is best to place your stop and increase your pre-determined risk
  • Expect to face a losing trade every now and then
  • Trading one day at a time is the best move
  • Trade fewer hours to allow your brain to relax
  • Trading can either be long term, intermediate-term and/or short term
  • The FX market is considered an Over The Counter (OTC) or ‘Interbank’ market
  • The Market is always traded in real-time
  • You can make use of an entry order
  • You can choose the time interval that you would like to trade under
  • A Forex quote is always a two-sided quote with a ‘bid’ and ‘offer’
  • One can make money using the forex trading
  • In forex, you can open long and short positions
  • Management risk can potentially increase profitability
  • Brokers offer different accounts types with different lot sizes
  • Consider trading with EUR/USD, USD/JPY, GBP/USD, and USD/CHF
  • Trading requires a healthy state of mind and a healthy body
  • Measure your profit increase by percentage
  • Don’t ask for an opinion from anyone
  • Professionals face losing trades every now and then
  • Forex has unlimited profit, but you can’t lose more than the margin
  • Any currency pair or quote that’s not against the US Dollar is called ‘Cross’, hence the term ‘Cross Rates’
  • Some brokers require Maintenance Margin
  • Bearish or Bear Market is determined by the decline in prices
  • Bullish or Bull Market is determined by the increase in prices
  • Margin Call happens when you don’t meet the broker’s margin requirements
  • In Forex a swap is the simultaneous purchase and sale of the same amount of a currency for two different dates against the sale and purchase of another
  • In forex you can’t invest the money you can’t afford to lose
  • Fibonacci Trading is not the ‘holy grail’ but can be useful for your trading strategy
  • Forex has different types of Gaps in the market.
  • Traders make use of trends, support, and resistance to forecast the direction of the market
  • You can trade using your cellphone with mobile apps like MT4/MT5
  • There are 4 types of forex sectors namely: spot, forward, future market and currency options
  • There are forex mentors and academies around the globe
  • Not Every day is a trading day
  • There a number of Account Managers around the globe
  • Every broker offer different deposit and withdrawal methods
  • Highest execution speed is key when trading
  • You are required to submit proof of identity and residence when registering with a broker
  • When trading, you are required to deposit money into your trading account through the broker
  • The market is not a gambling platform
  • Do not overtrade, your profits shouldn’t be too little and never make tight stops – this is a losing strategy
  • Central Banks play a major role in Forex – as it seeks to control the money supply and ultimately have official targets as well as unofficial target rates for their currency as a national central bank.
  • Some of the most obvious factors affecting our currency are interest rates and inflation
  • Currently, the big focus has been on US Dollar, British Pound, Japanese Yen, Eurodollar and Swiss Franc.
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