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What is Forex?

Okay, let’s imagine this: You’re planning a vacation to another country.

Let’s say you’re flying from South Africa to the US. When you land, you’ll need US dollars to buy food,

pay for a taxi, or go shopping because the South African rand won’t work there.

So, you go to a currency exchange booth at the airport and trade your rands for dollars. Now, the exchange rate decides how many dollars you’ll get for your rands. For example, if the exchange rate is 1 USD = 18 ZAR, then R1,800 will get you $100.

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Here’s the thing:

That exchange rate keeps changing. One day it might be 1 USD = 18 ZAR, and the next day it could be 19 ZAR. Why? Because the value of currencies goes up and down depending on how people and businesses are trading them.

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That’s Forex—short for foreign exchange. It’s like that currency exchange booth, but on a massive scale. Instead of one person trading a few rands for dollars, it’s people, businesses, and even banks trading trillions of dollars’ worth of currencies every single day.

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What Makes Forex Exciting?

Here’s the cool part: You don’t have to travel or go to an exchange booth to trade. With Forex, you can trade currencies online, right from your phone or computer.

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And get this: Over $7 trillion is traded in Forex daily. To put that in perspective, that’s more money in one day than the stock markets trade in a month. Plus, Forex runs 24 hours a day from Monday to Friday.

 

No matter what time it is, there’s always someone trading somewhere in the world—Tokyo, London, or New York.

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So, What Do You Actually Trade in Forex?

Most people think Forex is just about currencies, and yes, that’s the main thing. But there’s more to it than just dollars and euros. Let me break it down:

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• Currency Pairs: This is the bread and butter of Forex. Currencies are traded in pairs, like EUR/USD (euro vs. US dollar). Why pairs? Because when you trade, you’re always comparing one currency to another.

  • Example: Imagine you believe the euro will get stronger compared to the US dollar. You’d buy EUR/USD. If the euro’s value goes up, you make a profit.

  • Fun fact: Currency pairs are divided into majors (like EUR/USD), minors, and exotics (like USD/TRY for the Turkish lira). Majors are the most popular and stable.

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• Gold and Silver: Did you know you can trade precious metals in Forex too? Gold (traded as XAU/USD) is super popular because it tends to hold its value even when currencies drop.

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• Oil and Gas: Energy commodities like oil are also part of Forex. Their prices are influenced by things like global demand, supply issues, or even politics.

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• Cryptocurrencies: Heard of Bitcoin? It’s a digital currency that you can trade alongside traditional currencies. Unlike Forex, crypto markets run 24/7, even on weekends.

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How Does Currency Trading Work?

Let’s go back to the currency pair idea. Imagine you’re looking at EUR/USD:

• The first currency (euro) is the “base currency.”

• The second currency (US dollar) is the “quote currency.”

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When you buy EUR/USD, you’re basically saying, “I think the euro will get stronger compared to the dollar.” If the euro’s value increases, you can sell it back for a profit.

• Example: If you buy EUR/USD at 1.10, you’re paying $1.10 for 1 euro. Later, if it goes up to 1.20, your euro is now worth more dollars, so you’ve made money.

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But here’s the thing: The opposite can happen too. If the euro goes down instead of up, you’d lose money. That’s why Forex trading isn’t just guessing—it’s about learning, practicing, and using strategies.

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Why Is Forex Open 24 Hours?

You might wonder, “How can it run all day and night?” It’s because Forex isn’t tied to one specific place. It’s a global market, with different trading sessions in different time zones.

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For example:

• Tokyo session: When Asia wakes up, currencies like the Japanese yen are most active.

• London session: Europe dominates during the day, with the euro and pound making big moves.

• New York session: Later in the day, the US dollar becomes the star as Americans start trading.

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When one session ends, another begins, keeping the market open 24/5.

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What’s the Difference Between Forex and Crypto?

Both are exciting, but they’re quite different:

• Forex: Traditional currencies like dollars, euros, or yen. It’s been around for decades, and it has set trading hours (Monday to Friday).

• Crypto: Digital currencies like Bitcoin. It’s newer, more volatile, and trades 24/7, even on weekends.

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Why Do People Trade Forex?

Two main reasons:

1. Opportunity: Since the market is so big, there are always chances to make money, whether currencies are going up or down.

2. Flexibility: You don’t need a lot of money to start. Many brokers let you trade with small amounts while you learn.

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Does that make sense? Forex might sound big and complicated at first, but once you understand the basics, it’s just about practice and learning step by step. I’d be happy to show you how to take the next step if you’re interested!