The purpose of this guide is to introduce you to a world of Forex. We will tell you what FOREX is. Help in choosing a broker. Provide the necessary guidance at the initial stage of your adventure as well as on your future path and provide educational materials, market news, and strategies ideas.
So, let’s get started.
FOREX #101
The Foreign Exchange Market or the Forex Market of simply the FX Market, is a huge global market, where buying and selling of currencies takes place constantly 24 hours a day five days a week.The market is, mostly, unregulated, decentralized, and has no single central marketplace.
In the past the market was the exclusive province of banks. They dealt with their clients and each other as well as Central Banks and other monetary agencies like the Bank for International Settlements (BIS) or the International Monetary Fund.
Despite the rise of Fintech where a lot of trading operations have been handed on to online brokers, Banks still remain at the top of the pyramid, the only entities capable of providing sufficient liquidity to cater to a market worth in excess of $5trn per day in turnover.
Liquidity is the lifeblood of the market and controls everything from pricing to spreads to the ability of an entity to move tremendously large sums of money seamlessly around the world.
What do you have to know?
Where is the market domiciled? The answer is everywhere. Every bank who quotes a price to their client is, at that moment, the market. His price is all that counts. Being able to gauge the market and make prices to competitors is what marks bank traders apart.
Retail traders have the luxury of almost unlimited liquidity. They can always see a price at which they can trade. Of course there will always be fractures like the SNB action when they withdrew the peg or the Bank of England leaving the ERM.
As a retail trader, you wish to buy Eur/Usd at 1.1285. The market is 1.1300 so you place an order. That order is given to your broker who, provided he is an STP broker will hand that on ti the market. But wait, didn’t we say there is no market? That is true each order is handed gto a bank and they will keep it in their books until execution where the “fill” will be handed to the broker who will notify you. Then you will place a take profit and a stop loss, remembering to work with at least 1:1.5 risk reward and the whole process is handed to the broker and onto the bank.
There are literally millions of orders in the system and that is why it is a very sensible trader who makes sure his stop loss is set at a level that won’t make it part of the crowd. A smart trader will use a system to set his stop which makes it definite that his position is wrong and not that he his being whipped out of position because 20k other traders read a signal incorrectly.
