Forex is the knowledge and business of making money through trading currencies against each other. Forex is not a new business and its history is as old as the history of money.

What is forex is a question that people ask a lot these days. There are people who have been making money through Forex from many years ago. Fortunately, with the help of computer and internet, Forex trading has become much easier. You can sit at your personal computer and trade from home without having to make any phone call or referring to any bank.

Like any other field of activity, forex trading has its own terms, its own jargon. ‘FOREX’, ‘trends’, ‘indicators’, ‘base currency’, ‘instrument’ – what does it all mean? You could of course blithely ignore all the ground work and start speculating now. Why not? You’ll certainly have a lot of fun, buying and selling currencies, winning and losing money. Why not indeed? I’ve nothing against gambling and in fact I enjoy a flutter myself. One thing though, when I go down to the horses, I’ve got a fixed budget of what I can play with. I even view this money as gone before I lose it. I’m not gambling as a business, I’m gambling for pleasure: it’s a kick, a buzz. I like the atmosphere on a racecourse; I like the people and having a drink and a chat. I like putting my money down and if I come out on top, then that is just the icing on the cake. You can view playing on the currency market in the same way; something to add a little spice to life and this book will be of interest to you and will help you put your money down in a more organized way. However, it’s really aimed at people who want to study and at the very least pick up the basic principles of how the market functions and how to analyze it. For the second group it’s vital to build up a trading knowledge base before going onto the market. Otherwise it’s like the seeds on stony ground, with no roots they shrivel up and die.

To get down to basics, ‘FOREX’ means foreign exchange. Most of us have had dealings on this market. Perhaps when we’ve gone abroad on holiday and needed to buy the local currency or maybe we’ve saved our money in a more stable currency than our own.

The foreign exchange market is entering the prime of its life now – it was born in the mid-1970s. Before this time different currencies could not change their rate easily, that is their value did not depend on the correlations of bids and offers or reflect the expectations of buyers and sellers as is the case today. This was because of an international agreement called the Bretton Woods agreement. Bretton Woods is a resort town in North Hampshire, USA and it was here, in 1944, that the Allies in the Second World War met to discuss the economic future of the world after the end of the war. The Allies realized that many countries were going to be in a bad financial situation by the end of the war and that financial instability led to political extremism which, in turn, led to war. So they knew that they had to make preparations to ensure that the world’s nations got through the difficult post-war period without triggering a global financial crisis. It was the Bretton Woods Conference that gave birth to the IMF and the World Bank and it was here that the agreement was made to peg currencies to the dollar, which in turn was pegged to the price of gold (an ounce of gold was worth about thirty bucks). This made the US dollar as ‘good as gold’ and the world’s reserve currency.

The early 70’s saw the demise of the Bretton Woods system. It had completed its mission and the currencies of the major economic powers were ready to find their own value on the market and started to ‘float’. That is they became self- determining.

Once this happened the Forex market became a natural consequence. The exchange rate is determined by the consensus of buyers and sellers at any one point in time. It’s very hard to talk about a specific end result because the rates float, they are in a constant state of flux. Now there will be one rate, in a second there could be another and in an hour something very different indeed. Foreign exchange rates are dynamic. Don’t get me wrong. Forex is not the only market where prices float, but it is the only market which works 24 hours every day in the working week. At all times of the day be it morning, noon or night there is a brisk trade on the market and this trade leads to constantly changing rates. Because the Earth is round, constantly spinning, there’s no end to the countless volunteers, taking part and making money. The sun never sets on the trade! A lot of people complain about working from nine to five. But on Forex, you can freelance before work, after work or instead of work, in the morning, during the day, in the evening, at night, whenever you want.

This market is massive. There are not enough fingers and toes on the planet to count how much money flows on the Forex market. The daily volume of transactions on the foreign exchange market ranges between 1 – 3 trillion dollars. That’s equal to 1 – 3 times the annual budget of the USA. It’s impressive, isn’t it? While we are talking numbers, the volume on the international equities market is around 200 billion dollars a day. Shares are not sweet wrappers but even the equities market can’t match Forex.

I nearly forgot the most important question about the foreign exchange market: where does it live? Well it’s homeless; it’s everywhere and nowhere, NFA: No Fixed Abode. It could be the only case in the world where being homeless is not just the most comfortable and convenient option but when homelessness is the only option. This party is just too big for any space other than cyberspace.

Flexibility is the key word. Whenever you want, wherever you are, the Forex market is just a keyboard away.

There are brokerage companies that enable you to buy and sell different currencies through the Internet and some simple softwares. For any trade that you make, you pay a small commission to the brokerage company that you are trading through.

You need to find a good, reliable and well-known brokerage company and sign up for an account with it. Then you have to fund your account. You use the money you have in your account to trade. Any profit that you make, will be added to your account and visa versa. Then you can withdraw the money you have made.

In Forex, you deal with currency pairs. There are four main currency pairs: British Pound and USD (GBP/USD), Euro and USD (EUR/USD), USD and Japanese Yen (USD/JPY), USD and Swiss Frank (USD/CHF).

In each currency pair, the first currency works as commodity and the second one works as money. For example when you choose GBP/USD to trade, if you buy, you buy British Pound against USD and if you sell, you sell British Pound against USD. It doesn’t matter what currency you have in your account. The trading software takes care of the exchanges and transactions automatically.

Buying low and selling high or selling high and buying low is the base of making money in Forex. For example If you buy GBP against USD when each GBP is equal to $1.9554USD and then sell it when it is $2.0235USD, you have made a profit. I don’t want to focus on more details in this article and explain how the profits and the money you make will be calculated. I will talk about these topics in other articles.

But the big question is that how you can find out the best time to buy and how you can predict that if you buy, the price will go up and you will make a profit? This is the most important question that makes you a successful trader.

There are two methods to know the optimum time to buy and sell: Technical and Fundamental Analysis.In technical analysis, you can predict the direction of the price using the the price chart analysis and also with the help of some special tools that are called Indicators.

GBP/JPY price chart with three indicators: RSI and MACD:

gbp-jpy.gif

Technical Analysis is a science and if you want to start working on Forex, you have to learn it properly, especially if you want to work as an intraday trader. It is not too hard to learn the technical analysis. If you are a focused and a serious person, you can learn technical analysis in a few months. There are a lot of free resources over the web that you can use to learn. There are some expensive training courses, but those who sign up for them are not happy and believe that they have learned nothing. So don’t waste your money. If you are serious to learn, there are a lot of free resources over the Internet. You can also visit this weblog every now and then or subscribe for my RSS feed. I will try to share my experiences with you.

The other method is the Fundamental Analysis. This method is used to predict the future movements of currencies’ prices, according to the economic and even political situation of the world and important developed countries like USA, UK, Germany, Japan and… .

Fundamental analysis has a long term usage but good traders can predict the sudden changes that happen after releasing an important news about economic situation of an important country. For example when the news says that economic situation of USA is improved for 5% in comparison to the last month, USD will become stronger and people start buying it. So the value of USD will go up because of the sudden increase of demand. If you know the effect of the news on the price, you can take the proper position and make money. Of course there are two sides in this story which means if you take the wrong position, you will lose.

Experienced and professional traders take the advantage of both technical and fundamental analysis whereas 99% of traders are dependent on the technical analysis.

1- Forex is an online home based business that doesn’t need referring, recruiting and advertising. You only deal with the currencies through the Internet. So you will not have to reply any email, make any phone call and spend any money on advertising.

2- If you learn Forex trading properly, you can make a lot of money. Forex can be your full time job that makes thousands of dollars for you every month. I have to emphasize again that if you start working on Forex before you learn it properly, it can be risky and you will lose your money. It is like driving. If you drive a car, before you learn to drive properly, you will hurt yourself and others but if you learn it properly first, it will be pleasant and funny.

3- You can make a lot of money by spending a small amount of money. Unlike other investments like stock market that you have to invest a lot of money to make a reasonable profit, you can make a good income through investing small amount of money. For example, with a $5000 account, you can make about $5000 per month. Of course it highly depends on the way that you trade and the strategy that you follow but good and experienced traders can double their money every month.

4- Forex - and of course stock market - are the only businesses that competition has positive impact on them. It is amazing, isn’t it? Competition is the biggest problem in all other businesses but in Forex, it helps the traders to make more money. Why?

Supply and demand are the factors that determine the price in any market. When there are too many buyers and sellers, price volatility will be much higher and market will be more dynamic. Price will go up and down more frequently and this is what we need to make money. When price goes up we buy and when it goes down we sell and make profit.

So if you choose Forex as your business, you will not have to be worried about competition.

What is Forex? If you are looking for a business to make money full time or part time, Forex is the best option. It can make reasonable decent income for you and on the other hand, you will not have to be worried about the problems like marketing, advertising, referring and recruiting and even you will not have to be worried about competition.