Forex Trading: 11 Essential Answers to Help You Learn Forex

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What is Forex Trading?

It refers to the process of trading foreign currencies.  Forex is an abbreviation of the term ‘foreign exchange’.

How is Forex traded?

The market opens Sunday evening at 5 p.m. Eastern Standard Time and remains open until Friday at 5:00 p.m. EST.

Remember, in the world of forex you do not physically exchange currencies.  If you are looking to purchase actual (physical) cash in other currencies you will need to use another platform for purchasing foreign currency.

To be clear, if you are going on vacation and need to buy Euro, you would not use the forex market (though that impacts your price) because you would not actually have the physical currency to spend on vacation.  This guide on the cheapest way to exchange foreign currencies will be more beneficial for your needs.  If you prefer to purchase physical currency, a platform like may be a better option.

How do you make money trading on the forex market?

The concept behind forex trading is relatively simple.  Purchase currencies that are increasing in value.  The stronger the value of your currency holdings, the more money you make.


You use $1000 USD (United States Dollar) to purchase 714.29 EUR (Euro).  The USD to EUR rate is 1.4.  In other words $1.40 USD will buy one EUR.

Assume that two months later the USD to EUR exchange rate is now 1.5.  You would still have 714.29 EUR, but that now only represents $666.66 because the value of the USD strengthened in comparison to the EUR.

If the currency you are holding becomes stronger, you make money.

Forex trading is all about how currencies move in relation to each other.  There is not a standard value against which a currency is measured.  The only way to know the value of your currency is in comparison to another.  At any given time one currency will be increasing in value as compared to one currency and decreasing in value as compared to another currency.

Why are their two sets of numbers (inverse) for each currency set?

At times you will see something like the following:

1.74 USD/GBP – This rate tells you how many USD (1.74) it will cost you to buy one GBP.


0.5730 GBP/USD – this rate tells you how many GBP (.5730) it will cost you to buy one USD.

How do I calculate how much of another currency one currency will purchase?

While all online platforms and calculators can make the calculations for you, the numbers are calculated as follows:

If EUR is worth, for example, 1.4 USD, you would get 7,142.86 EUR for 10,000 USD (10,000 ÷ 1.40 = 7,142.86)

Is Forex trading risky?

Yes.  Extremely.  The problem with Forex trading is that there are so many variables in place.  In my opinion, it is almost impossible for the average investor to know, understand, and interpret all those moving parts.

The forex world is a volatile place to invest your money.

What factors influence the value of a currency?

Currencies move based on governmental policies, perceived strength of certain currencies, economic conditions of countries, export and import needs, trade deficits, stock market performance, interest rates and politics.

Why is trading forex becoming more popular?

Theoretically, there is money to be made every day – a lot of money.

Get online and scan your paper and you will notice that certain currencies have drastic increases and decreases.  This excites the average person into falsely concluding ‘if I had bought “x” currency when it was worth “y” then I’d be rich.  It appears simple, but it is not.

Can anyone participate in the forex trading market?

Yes.  With the development of technology you can sign up for your own forex investing account on the internet.

There are forex advisors who will try to help you identify currencies with potential.  This, however, is an extremely difficult thing to do because of the many factors that influence the value of a currency (see above).

Is forex investing a good way to protect yourself against a declining US dollar?

Theoretically, the answer is yes – as long as the value of dollar continues to decline.  That, however, is a question only speculators know.  There may be indicators, but there is no certainty as to the future direction of the USD.  Therefore, while it is a viable option, it is also a risky one.

How do I get started with Trading Forex?

If you decide Forex trading is ideal for you, find a good trading platform.  You could look at or review a list of possible trading platforms.

Is the $50,000 practice currency trading account at a good idea?

Absolutely not.  This encourages you to experiment.  Not a bad idea, right?  The problem is that everyone who makes money (in the short term) will think they are prime material for forex trading.  Your ability to successfully invest $50,000 of play has no relationship to your ability to successfully manage your own money over a long period of time.

How much of your investment portfolio should be used in the forex market?

Because of the risk involved your forex exposure should not exceed 5-10% of your total portfolio.  One must also consider the amount of foreign stock or mutual fund holdings in their portfolio as these holdings are already moving somewhat in relationship to the forex market.

For most people, the following five tips will help reduce your exposure to a declining dollar.

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Photo by rixbaby.


    • Craig says

      @FS. There can be a lot of currency fluctuation. This is what increases the risk. For example, in the last year the Australian dollar has gain almost 45% compared to the US dollar. A great return for a year. Thus, your earning potential might be equal to the stock market, but due to the risks I wouldn’t suggest it.

  1. says

    It seems to me like the average investor that wants to hedge against currency fluctuations would be better served by just investing in a currency ETF rather than trying their hand in the potentially very risky (for a novice) Forex market (actually on second thought I would say that the Forex market can be risky even for an expert trader).
    .-= Credit Card Chaser´s last blog ..Credit Cards & Bankruptcy: A Visual Tragedy =-.

    • Craig says

      @Credit Card Chaser. I agree that a currecy ETF is probably safer. However, the whole field is (like you said) a risky one. I think most people would be better served sticking with safer investments. Thanks for your comment.

  2. says

    That was a very interesting article,I have tried three approaches to learning about forex trading, because it is quite intimidating to get into.
    I have tried a forex robot (in fact, I have one running for me now) with some success, but I have not learnt much about how to actually trade. I alos tried a semi-automated system, where potential trades are highlighted, and I get to choose. Again, good results, but not much learning value.
    Finally, I have tried a community based system, where I can study the methods of a given human advisor (to whom I give anonymous access to my account) and learn the techniques for myself. This has been the most helpful.
    Thanks for this post!
    Keep on posting:))
    .-= Jessica´s last blog ..Why Training is Important for Forex Trading =-.

  3. says

    I agree that investing in a currency ETF is less risky for a beginner than the Forex market. It’s about educating yourself on the best way to trade them. ETF’s as an investment provide the advantages of less risk but good solid performance. Anyone considering trading, whether it be in exchange traded funds, forex market, individual stocks should take the time to assess the risks and the rewards. They should also they have a set strategy for the market that are investing in.

    .-= Jonathan Devine´s last blog ..How To Supercharge Your Portfolio & Gain An Unfair Advantage Using Powerful Underground ‘ETF Funds’ Trading Strategies………Before The "Mainstream" Catch On!! =-.

  4. Joe Retief says

    I have stopped trading Forex altogether because I have developed serious ethical problems as a Christian with it.

    Most types of financial trading and day trading are a zero sum game, even a negative sum game. It produces NOTHING of value, no goods or services, and no wealth is created like in Stock Trading. The net change in total wealth among traders is zero at the end of the day (sometimes even less!) – the wealth is just SHIFTED from one trader to another! (Reallocation of wealth – júst like in gambling)

    It is far too close to gambling for me (some skill, a lot of chance), and you make gains ONLY at another’s expense! Jesus said that we should love our neighbor as we love ourselves. How can you do that when you profit only at somebody else’s expense? It is a violation of Jesus’ most basic commandment for humanity. And to give to worthy causes from Forex earnings may be great, but the end never justifies the means! I personally consider Forex now essentially a form of legalized stealing and robbery. The experienced Forex trader is committed to “fleecing” those who are inexperienced!

    Don’t pray and ask God to help you with your financial trading – I don’t believe He will! Don’t be deceived. When I say God won’t help you with your financial trading, I don’t mean all trading. I mean trading that tends to be morally wrong. I tried it, while praying a lot about it, and in the end still lost most of my capital. I don’t think God will get involved in practices that are very speculative and close to gambling. It is simply against His Word.

    Henry Ford said: ” Wealth is never attained when sought after directly. It comes as a by-product of supplying a useful service.”

    An agnostic has even said: “In Forex you’re not doing any useful work, and you’re hoping to make a lot of money from it, right? Isn’t this really like stealing from the public? You’re hoping to get a lot of money from moving currencies around, and you’re not giving the world anything in return – except moving some currencies around. I think that’s just like theft.”

    By the way, the odds ate totally stacked up against you in Forex. Up to 95% of small forex traders loose all their money in trading.

    Think carefully about what I have said. This is how I think and feel right now. I don’t know if anybody can convince me otherwise/refute my arguments?

    (Additional Information:
    When I say God won’t help you with your financial trading, I don’t mean all trading. I mean trading that tends to be morally wrong. I tried it, while praying a lot about it, and in the end still lost most of my capital. I don’t think God will get involved in practices that are very speculative and close to gambling. It is simply against His Word.)

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