How Does Forex Work? Learn The Ropes in 4 Minutes (2024) (2024)

Are you making money trading Forex?

You do? Oh,

Tell us about it.

Apparently, not everyone who say they know how Forex works have the slightest idea about Foreign Exchange, Forex – FX.

Some of them just know the trading terms – nothing else.

And they’ll use those terms to confuse you more.

Especially if your idea of learning How Forex Works is to go to Facebook “Forex Group” & ask a bunch of other struggling Forex Traders to help you with the ropes.

What do you expect?

To learn?

I hate to break it to you. Point blank.

You’ll loose & loose & loose more.

That’s the truth.

And the flip side to loosing is winning which you will only achieve when you educate yourself enough to understand Forex Trading basics. I will use this post to train you on that.

Beginning with,

What is Forex?

Foreign Exchange, Forex also FX is a global market for buying & selling currencies. Traders make these exchanges with the aim of making profits off currency price changes.

A real life example of Forex trading is when you cross the boarder to Uganda with Kenyan Shillings (Ksh). & you want to convert to Ugandan Currency to buy goods in Uganda.

And you meet someone in Uganda (with the Ugandan Currency) willing to give you the money for yours. Let’s say Kenyan Shilling (Ksh.) in this case.

When you negotiate & come to a consensus to exchange the two currencies; it is said that you have traded – you have done Forex.

But,

How do Forex Traders Make Money?

Taking the above scenario as our example again, there are two way to it.

The Ugandan makes money when he sells their currency at a slightly higher price to make profits.

Usually, it is by a very light margin that the impact is only felt when there is a larger trading volume.

***

Assuming that so many Kenyans crossed the boarder to Uganda & there was only one currency broker to serve them all, the broker will automatically increase his exchange rates to keep more profits.

And all factors held constant (more people buying), the trader will somewhat be running out of Ugandan money to sell.

***

If you go back to him & that’s the case; you can sell back the Ugandan currency (at a more expensive price) to make profits.

However if you come back to find more brokers in the boarder – with more Ugandan currency & less people to sell to; you will be forced to sell to them cheaply. And make more losses..

However, you are not obliged to sell, you can still hold the currency much longer hopping that a demand for it will rise so you can sell higher & make profits.

This is the same thing happening in your Forex Charts. People of different Nationalities buy & sell currencies globally. In banks, airports, across boarders… name it. Making currency prices to rise & fall. 24 hours a day, 5 days a week. With only a few exceptions for weekends by currency.

When Should You Trade Forex to Make Money?

This is a question that most Forex Traders ask. And now that you have a general idea about how Forex works, I’ll help you foot that.

From our example again, when the two currencies are traded, they are quoted as (KES-UGX).

In Forex, this is an “asset” referred to as a currency pair. The most commonly traded currency pair online isEUR USD. If you are already a trader then you know that trader Profits are made in PIP movements.

And What’s a PIP?

This is, how far the price of an asset goes after opening a position. Example, if our Ugandan Broker was selling his UGX for36.35662 per 1 KES (Ksh.) & you bought it (Opened a position).

When later you want to sell back the currency to him & you agree that he will buy form you UGX – 36.35681 for 1 KES.The change in those last two digits determine your profits. The PIP moved by 0.00019.

You can make good & consistent profits if you know when your preferred asset is active or volatile on the market.

The best place to begin to track the activity & volatility of a market is by understanding Forex Market activities in different parts of the world. Not to forget their time zones.

So,

When Does Forex Market Open?

Forex has 4 different Trading Sessions.

Each session indicates an opening of the Forex Market in different regions of the world.

We have the Pacific session, the Asian session, European & North American Sessions. These markets open differently because of the difference in time zones.

The sessions open one after the other & later overlap making Forex trading to happen nonstop for 24 hours from Monday to Friday.

Forex Trading Hours – The Session’s Schedule.

Forex markets open in Wellington (New Zealand) & closes in Chicago (The USA) following each other closely in this geographical chain (time’s in GMT Hours).

• Pacific: 09:00 p.m. – 06:00 a.m. (The least active in Forex Trading).
• Asian: 11:00 p.m. – 07:00 a.m.
• European: 07:00 a.m. – 05:00 p.m.
• North American: 04:00 p.m. – 10:00 p.m. (The most active region in Forex Trading).

How to Choose The Best Forex Trading Hours.

Find a session which can accommodate your schedule without having to sit in front of your computer all day long (of course if you are not a scalper)

Pick a currency which you think will show the highest volatility

Here’s a little extra info to know: –

Major Forex Players involved in Pacific & Asian Forex Sessions includeJapan, China, Australia & New Zealand.

Trade currency in this session if you want currency pairs withJapanese yen, Australian & New Zealand dollar.

Note that during this session, it is daytime in Asia & in Oceania.

The session that comes next after the pacific is the European. If you are serious about making profits, know that this is a very important session in Trading.

This is when Europeans begin their working day. It is also the period when banks, as well as speculators like you & me, enter the market.

Expect to see a lot of PIP movement during this period.

Watch these two currencies during this session –EUR/USD &EUR/JPY.

Here are a few other currencies to lock during the session –GBP/CHF, GBP/USD, GBP/JPY, GBP/AUD, GBP/CAD, GBP/NZD.

When Should I Enter The Forex Market?

The decision is solely yours. But most people only go in when the American Sessionbegins.

If you didn’t know already, this is the time when real business begins in Forex.

And because all currencies paired with USD are now traded, trading volume shoots.

It is also the time when great speculators & large hedge funds join in.

I Want To Start Trading, Which is The Best Forex Broker For Beginners?

Personally, I use Olymp Trade Forex

There are however a lot more brokers out there. Just be careful not to fall to scammers.

If you ask me for any recommendations I’ll say, “View my list of Forex Brokers with new account bonus.” You get up to a $150 welcome bonus with these Fx brokers.

You can also start with the demo account to learn practically.

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