What is Forex?

The foreign exchange market (**forex**, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.

The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying some quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

What makes Forex best for trading?

The fact that Forex market is the biggest one, that moves the biggest quantity of money daily, makes it the best place to do trading. It could be manual or automated, but you can use technical analysis as well as fundamental analysis.

On other markets, like stock market you are limited by the volume and the time zone of the market you are going to trade, with Forex you have 5.5 days a week to trade, at the time you like, and that is a big plus.

Forex and Bitcoin

The Bitcoin in Forex is just starting. Currently there a little number of brokers that accept Bitcoin and most of them only accept it as a deposit method, and then convert it to another currency. Nevertheless, the number of Bitcoin accepting brokers is growing and some allows you to maintain your account in Bitcoins and pay the profit (or take the loss) with Bitcoins.

A simple type of Bitcoin Forex is the exchanges, like MtGox, BTC-e and others. They allow you to change Bitcoins for another currency and viceversa.

How to trade Forex?

There are three main ways to trade the Forex market:

  • Fundamental
  • Technical
  • Sentiment

And there are also various time frames to trade it:

  • Lower time frames from 15 minutes to less than a minute (often called scalping)
  • Medium term time frames, from 15 minutes to 4 hours (often called intraday trading)
  • Higher time frames, from 4 hours to weeks or months (often called swing trading or positional trading)

There are also at least two main techniques to trade the forex:

  • Trend Following, that aims to enter in a trending move and exiting when the price has moved enough from the entry point
  • Range trading, that aims to catch tops and bottoms in a move that is bounded by a range

What is the best method to trade forex?

Well, that is a difficult question to answer. Most people think about taking small profits often, but also most people ends losing money with this approach. It is a lot easier to trade the Forex in longer term view. Just because you have enough time to do a detailed analysis, after being well rested, with lower stress, it makes the difference. You can trade trend and range techniques, but it is a lot easier to do it in higher time frames like daily and weekly.

References

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