What is FOREX and how does it work?

Forex Definition

In this post I come to explain to you in a simple way, what is Forex and how this gigantic currency market works, so that you can enter the incredible world of trading. If you read to the end, in addition to clarifying your doubts on this subject, you will realize that it is not something as complex as it seems, you just have to feel like it, and wait for the fruits to begin to ripen.

What is Forex?

In general we can tell you that FOREX, whose term comes from Foreign Exchange which in Spanish means “currency exchange”, is neither more nor less than the largest market in the world and with the greatest liquidity, reaching daily trading volumes that exceed 3 trillion dollars.

So much so that the New York Stock Exchange, which is the largest on the planet, takes around 30 days to handle that amount.

Now, going into details, unlike the New York Stock Exchange or other markets, Forex does not have a physical place, as it works through virtual procedures that are executed from anywhere in the world for 5 days a week without interruption. 24 hours, only closed on weekends. These virtual procedures or transactions are nothing more than banks, companies or even people in this case the traders, buying money paying with money, does it confuse you? Well, keep reading and I’ll explain.

How does Forex work?

Almost all countries have their own currency, so there are dozens of currencies in circulation, for example, the United States has dollars, Mexico has Mexican pesos, European Union countries such as Spain, Italy, France, etc… have the euro and so with the other countries. Each type of currency has a certain value.

Let’s take a practical example, imagine that you are going on vacation to Italy, but in your country the currency or main currency is the dollar or USD, and you have 2000 USD to spend on the trip, then, once you arrive at your destination, to be able to buy or pay for services in that country you need euros (EUR), so you must go to an exchange house and buy those euros you need with your dollars, but having a different value if, for example, the euro is currently trading at 1.25 you only they will give 2000 / 1.25 which would be 1600 euros.

Well, Forex is like that exchange house but at a global level, where banks, companies, etc…, need money or currencies from other countries for their negotiations, and because of this those transactions or virtual procedures arise from which you spoke before.

That is why when we work with Forex, currencies will always appear in pairs, the best known are the Euro-Dollar or EUR / USD pair, the Pound-Dollar pair or GBR / USD, and the Dollar-Yen or USDYJP pair, having for each of them a different exchange price.

The exchange values ​​of each currency are defined depending on supply and demand, that is, if a currency has more demand than supply, its price will rise, and otherwise, if supply is greater than demand, the price will go down. As there is a constant variation between the supply and demand values, constant fluctuations in the price of currencies are generated.

How do you make money in Forex?

We traders take advantage of these fluctuations to generate profits or income, because if our analysis indicates that the price of a certain currency pair such as the EURUSD is going to rise, then we buy and then sell it more expensive and thus obtain the profits for that difference, And if our analysis tells us that the price is going to go down, then we sell and then buy cheaper and thus take the profits, so in this market you can take advantage of both price increases and decreases.

Here I want to emphasize that unlike in real life, you do not need, for example, euros to sell or buy them, you only need a capital in the trading account to be able to enter and exit the market, look at it this way, you have 1000 dollars in your trading account and you think that the price of the euro is going to go down, because you enter the market with a sell position, the size you can afford, it can be for example 100 dollars, where on the other side of the world there will be another person buying that same amount, and if the price goes in your favor, in this case downwards, you would be winning the money that the other person will be losing, because in that case the market went against them, and once you think that the price will start to rise Again, you get out of the market taking the profits, it’s that simple.

This is a profession, not a casino

I want to make it clear to you, trading is not a game of chance, and guessing in which direction the market will move is very complicated, so you need a lot of patience, dedication and commitment, but above all a lot of training and practice. Entering the financial markets including Forex, without having had a good training that includes mastery of concepts, techniques, and consistent practice of a particular strategy, will cause you to lose your money in a short time and be disappointed in trading, and it is not the objective, because to tell the truth in my opinion, is the best job in the world.

Real stats

To give you an idea, the 90, 90, 90 rule says that 90% of traders lose more than 90% of their account in less than 90 days, an interesting figure, yes, but all is not lost, yes you form and train correctly you can get past that 10% who earn a lot of money in the currency markets or financial markets. But the good news is that in this blog we will teach you to be part of this 10% totally FREE.

However, if you do not have enough time to dedicate to this activity or your training and you have some capital to invest, there are also many signal providers, which are basically people with many years of experience, professionals who give you the tools and the possibility of doing operations professionally without having much knowledge of the market, opening and closing operations when they tell you to and in the way they tell you, giving you a certain degree of profitability, yes, no experiments or contributions, you just do things exactly as they say, because otherwise it can cause you to lose all your money in no time.

I also want to tell you to be very careful when choosing these types of services, because many of them may not be as profitable as they promise, because they do not have proven results over long periods of time.

What to do to start investing in the FOREX market?

With the advancement of technology, today it is very easy and cheap to start investing in the Forex market, look at the simple steps you must follow to start as quickly as possible.

1. The first thing you should do is decide how much money you want to allocate to start investing, always remember that it must be an amount that you can afford to lose, because it is very likely that at the beginning, you will lose that amount even several times. And it is not the end of the world, it is a normal process when you start and you are a beginner, I for example burned several accounts before I could make a living from this.

2. Find and hire the services of a good Forex broker, with reasonable leverage, and favorable trading conditions for this type of market. But do not be scared that today there are many brokers that do not charge for their services, they only earn for your operations.

3. As the third and final mandatory step, we have the training, that is, to spend time studying and practicing both technique and psychology, otherwise you would be gambling like in a casino, and not investing as you should.


By way of conclusions, we can say that FOREX is a giant exchange house that we can take advantage of to make great profits, but to achieve this we have to be consistent and take things seriously, because this is not a game, it is a profession. It needs a lot of study and above all patience, because the lack of it can be your worst enemy in this business, since they say that a successful trader is composed of 80% psychology and the other 20% technical training.

But what are you waiting for?

Start preparing now, time continues to pass, and the only way to achieve that freedom you want so much is to take the bull by the horns and become a professional, without bosses or schedules, and the best, earning a lot of money and time to do what you want the most, at the time you want.

It only remains for me to warn you that you should always risk the money you can afford to lose so that you do not put your life down if the worst happens.

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