What is Forex?
In today’s fast-paced world, financial markets serve as the beating heart of the global economy, playing a vital role in exchanges and investments. Among these markets, the Forex market (Foreign Exchange Market) stands out as the largest financial market in the world, with a daily transaction volume of more than 6.6 trillion dollars. This market provides access to the dynamic world of currencies, offering countless opportunities and challenges for traders and investors worldwide.
The fundamental concepts of the forex market that you should be familiar with
• currency pair: In the forex market, a currency pair is the fundamental unit of trading. Each currency pair comprises two currencies, with the value of one (known as the base currency) being determined in terms of the other (known as the quote currency). For instance, in the pair EUR/USD, the price represents the value of one euro in terms of US dollars.
• Pip: Pip is the smallest unit of price change in the forex market. For currency pairs priced in USD, each pip is equal to 0.0001 units of the base currency. For example, in the EUR/USD pair, 1 pip means a 0.0001 euro change in the price of each euro.
• Lot: In the forex market, a lot is the standard trading volume unit. Each standard lot represents 100,000 units of the base currency. For instance, 1 lot of EUR/USD signifies a trade of 100,000 EUR.
• Broker: A broker serves as an intermediary in the forex market, facilitating transactions between currency buyers and sellers. Brokers provide trading platforms to clients and earn commissions for trades.
• Leverage: Leverage is a tool that enables traders to buy and sell currencies with less money than the total transaction value. While leverage can significantly increase trading profits, it also proportionally increases the risk of trading.
What are the advantages and disadvantages of trading in the forex market?
The advantages of trading in the forex market include
• Forex market operates 24/7, allowing traders to trade anytime, anywhere, except on public holidays.
• The forex market has a very high level of liquidity, with a daily trading volume of 6.6 trillion dollars. This means that traders can easily buy and sell currencies without worrying about a lack of liquidity. This is something that we do not see in Iran’s stock market today.
• Leverage and high profit potential: Utilizing leverage in the forex market can significantly increase trading profits; however, it’s important to remember that using leverage also heightens trading risk.
• A variety of trading tools: In the forex market, traders have access to a variety of trading tools including currency pairs, precious metals, stock indices, and more. This diversity enables traders to select the most suitable trading tools based on their strategy and risk tolerance.
The disadvantages of trading in the forex market are as follows
• High risk: The forex market is volatile and high risk. Currency price fluctuations can occur quickly, leading to trader losses.
• The need for knowledge and expertise: Success in the forex market requires sufficient knowledge and expertise in market analysis, trading, and risk management. Without the necessary knowledge and expertise, the possibility of losses in this market increases significantly.
• Transaction fees: Brokers receive fees for making transac2
How does the foreign exchange (forex) market operate?
The structure of the forex market4
The foreign exchange (forex) market is decentralized and unlike stock exchanges, it is not traded in any specific physical location. Transactions in this market are conducted electronically between buyers and sellers of currencies around the world. Brokers act as intermediaries in these transactions and provide trading platforms to their clients.
How to determine the prices of currencies
The price of currencies in the forex market is determined based on the supply and demand for those currencies. In simpler terms, if the demand for a currency is higher than its supply, the price of that currency will increase, and if the demand is lower than the supply, the price will decrease. Economic, political, and social conditions, among other factors, can affect the supply and demand for currencies and thus impact their prices.
The different types of transactions in the forex markets
The forex market provides traders with a wide range of trading tools and opportunities. In this market, you can engage in buying and selling currencies using various methods. Below, we will provide a detailed explanation of the 6 common types of transactions in the forex market:
• Spot or cash transactions (FX spot): Spot transactions are the most common type of transactions in the forex market, where currencies are bought and sold instantly at the daily price.
• Futures transactions (FX Futures): In futures trading, currencies are bought and sold at a predetermined price for future delivery (usually several months or years in the future).
• Option Transactions (FX Options): In option trading, the buyer of the option has the right, but not the obligation, to buy or sell a currency at a predetermined price (the strike price) on a specified future date (the expiration date). Option transactions can be settled in cash or in physical form. In cash settlement, only the price difference between the base price and the currency market price on the maturity date is paid to the option buyer or seller. In physical settlement, the traded currency is delivered to the buyer of the call option or the buyer of the put option on the maturity date.
Types of option transactions
• Call option: provides the buyer with the right to purchase the currency at a predetermined price on the maturity date.
• Put Option: Gives the buyer of the put option the right to sell the currency at a predetermined price on the maturity date.
ETFs, or exchange-traded funds, are investment funds that are traded on stock exchanges
• ETFs are exchange-traded funds that represent a diversified portfolio of assets, including stocks, bonds, or commodities.
FX Swaps
• A currency swap is a non-cash agreement between two parties to exchange currencies at different rates on future dates. This is typically done to hedge against exchange rate risk in international transactions or long-term investments.
Forward transactions (FX Forwards)
• Forward contracts are a type of non-cash transaction in which two parties agree to buy or sell a currency at a predetermined price on a specified date in the future. Forward transactions are very similar to futures transactions, with the difference that forward transactions are not traded on the stock exchange and are done by agreement between the two parties. Forward contracts are usually used to hedge exchange rate risk in international transactions or long-term investments.
The types of analysis used in forex market trading
• Technical analysis: This method involves predicting currency price trends using charts and technical indicators.
• Fundamental analysis: This method involves predicting currency price trends by examining economic, political, social, and other relevant factors.
Introducing different types of forex trading accounts
• Selecting the right broker is the initial step in entering the world of forex trading. Once you have chosen a broker, the next step is to select a trading account that meets your specific needs and conditions. Each forex broker provides a variety of trading accounts with different terms and features. Consequently, there is no fixed or single rule for choosing a trading account.
Presenting the different types of forex trading accounts
Account type | Description | Advantages | Disadvantages |
| Standard Account | The most common type of trading account with balanced terms and features | Suitable for a wide range of traders. Has a reasonable minimum deposit and trading volume, as well as reasonable spreads and fees. Also allows for the use of leverage and provides a user-friendly trading platform. | May not be suitable for novice traders with limited capital; spreads and fees are higher compared to some other accounts |
| Mini, Maker, or Cent Account (Cent Account) | The platform is perfect for novice traders with a low initial deposit and minimal trading volume. | Minimum deposit and very small transaction volume, suitable for practicing and gaining experience without high risk, spread, and low commission per pip. | Accounts with limited leverage may have fewer trading tools and facilities than other accounts, as well as lower liquidity in some currency pairs. |
| Trial or Demo Account | Open a risk-free account to practice and get familiar with the trading platform | No need to make a deposit. This is an opportunity to try out trading strategies without any real risk. You can also get to know the trading platform and its tools. | Transactions in the demo account may differ from real transactions in the forex market, and there is no possibility of experiencing actual profit or loss in this account. |
| VIP Account | Designed for seasoned traders, offering special services and facilities. | Lower spreads, reduced fees, increased leverage, advanced trading tools, VIP support, and exclusive services | The high minimum deposit may not be suitable for all traders. |
| Islamic Account | Transactions are conducted without interest and swap fees, in compliance with Islamic Sharia rules. | Compliance with Islamic Sharia rules, without incurring interest or swap fees, is suitable for Muslim traders. | Not available at all brokers, may have slightly higher spreads and fees. |
| ECN account | Direct market transactions without broker involvement and low spreads. | Very low spreads, transparent transactions without price manipulation, direct access to the international Forex market | Requires more knowledge and experience in trading, may charge small fees per trade, lower liquidity in some currency pairs |
| STP Account | Direct market transactions through a broker with low spreads and no price manipulation. | Enjoy low spreads, transparent transactions without price manipulation, and access to high liquidity. | Trading may incur small fees per trade, necessitating a greater understanding and experience in trading. |
| PAMM Account | Consider investing in the portfolios of experienced and professional traders. |
Tips and advice for traders in the Forex market
• Gain sufficient knowledge and expertise in market analysis, trading, and risk management before venturing into the forex market.
• Start with a small amount and gradually increase the volume of your transactions.
• Make sure to use a trading strategy that aligns with your risk tolerance
• Keep your emotions in check and steer clear of making decisions based on emotions.
• Make sure to regularly monitor your trading account and limit your losses if necessary.
• Do not be misled by scammers and swindlers; only trade with authorized brokers.
• Remember that the Forex market is volatile and high-risk, with no guaranteed profit.
Steps to Enter the Forex Market
To successfully enter the forex market, it is essential to master the basic knowledge and concepts of this market. Studying reliable educational resources, taking training courses, and gaining experience in demo accounts can prepare you to enter this market.
1- Selecting a Broker: When entering the world of Forex, the first step is to choose a reliable and authorized broker or agency. Pay attention to the broker’s activity history, legal licenses, trading platform, terms of trading accounts, and support services.
2- Register with the broker: After selecting a broker, sign up on their website and complete the authentication process as per the broker’s instructions.
3- Opening a trading account: According to your requirements and preferences, select the most appropriate type of trading account and proceed with the opening process.
4- Deposit funds: Deposit the desired amount into your account. The minimum deposit amount varies between brokers.
5- Installation of the trading platform: Install the trading platform provided by the broker on your computer or mobile phone.
6- Start of transactions: After reading the platform’s guide and getting familiar with its tools and features, you can start trading in the forex market.
Conclusion about what is forex article
The forex market has a daily trading volume of $6.6 trillion, making it the world’s largest financial market. It offers numerous opportunities for traders and investors worldwide. However, due to high volatility and inherent risk, it is considered a challenging market. Success in this market requires sufficient knowledge and expertise, an appropriate trading strategy, risk management, and patience. If you are seeking a challenge and have a high risk tolerance, the forex market can provide profitable opportunities. However, it’s important to remember that this market is not suitable for inexperienced and risk-averse individuals.
