1 – Introduction to Forex Trading

Brief History of Forex market

When the Second World War ended, all key currency pairs were valued against the value of gold. This was as a result of an agreement reached by the global community at a meeting held at Bretton Woods. The system later took to this location as its informal name. The deal initially made exchange rates stable, but it eventually became unsustainable after economic growth experienced post the second world war when the price of gold rose very high and became more and more costly. In 1971, the Bretton Woods system became defunct, and this allowed for the easy and free-floating of the exchange rate.

With the advent of the internet and the broad adoption in1990s, banks and small companies developed online systems to create automated quotes that make it possible for people to trade instantly. Technological advancement and regulation generated a new category of brokers that allowed individuals to buy and sell forex. This was how forex trading originated. The development open doors for retail forex trading with retail brokers helping traders to place their traders located in various parts of the world.

Who Trades Forex ?

Traders in the forex market are divided into two leading group of participants: The institutional investors and the retail investors. Each of these trader categories has a specific goal and objective for trading.

a) Institutional forex investors

Institutional forex investors are the most prominent players in the forex market. Their trade volume and funds account roughly 94.5 percent of the entire forex market trade volume.

b) Retail forex investors

The second group of forex traders is the retail traders. As opposed to the institutional traders, the retail market’ participants trade with their money and provide account and faces individual risks.

The trade volume of retail traders is insignificant compared to that of institutional investors. The participants that significantly influence the forex market include the following:

• Commercial Banks

• Central Banks

• Hedge Funds

• Corporations

• Individuals

Reward & Risk factor for Forex

a) Forex risk

Buying and selling forex comes with risks. You must, therefore, estimate the level and the seriousness of the risk before any trade execution.

b) The primary forms of risks experienced by forex traders in the forex market are:

• Exchange Rate Risk

• Interest Rate Risk

• Credit Risk

• Country Risk

• Liquidity Risk

• Marginal or Leverage Risk

• Transactional Risk

• Risk of Ruin

c) The rewards of forex trading

Just as the forex trading involves some risks; it as well comes with rewards. However, the amount of the reward is not constant due to the rise and fall in the price of currencies. The price fluctuations can be high or low and to be able to make the required profit you must know and apply excellent forex management tactics. You can open many mini-accounts which can assist you to lock in gains and afterward proceed to the second lot.