A Beginner’s Guide to FOREX Trading

A Beginner’s Guide to FOREX Trading

CHAPTER 1: 
INTRODUCTION TO THE FOREX 
MARKET
Part 1: What is FOREX?

FOREX is the acronym for the foreign exchange market where one type of currency is trad-

ed for another type of currency. FOREX is one of the world’s largest trading markets. While some 
traders on this market are just looking to exchange their own currency for a foreign currency, 
most participants are currency traders, which means they speculate on exchange rates and their 
movements, just like traders speculate on stock prices on the stock market. People who trade 
currency are trying to make money on the fluctuation of rates.
Rate fluctuations on the exchange are typically the result of actual monetary flows in addi-

tion to global macroeconomic conditions. All significant news that impacts the market is released 
publicly, so everyone who is trading on the market gets the news at the exact same time. This 
reduces “insider information” to almost zero.
On FOREX, currencies are traded against each other and are expressed as xxx/yyy where 
xxx represents one currency and yyy represents the second currency. So if you are trading euros 
against the U.S. dollar, one unit would be represented as EUR/USD or 1 euro = 1.0636 dollar. 
There is no universal exchange for a specific currency pair.
The FOREX market is open 24 hours a day, Sunday evening until Friday evening. When the Unit-

ed States trading session ends, another session (Pacific, Asian and so on) will start. This means that all 

world currencies are constantly up for trade. Traders don’t have to wait until the market opens to react 
to significant world news. An average of $5.3 trillion is exchanged every day.

Part 2: The History of FOREX

The FOREX exchange as it is known today began in 1973, but currency trading has 
actually been occurring since the first coins were introduced in the times of the Pharaohs 
of ancient Egypt. After World War II ended, though, the United States economy was strong 
relative to most of the European countries. The U.S. dollar became the prominent currency 
at this time and was recognized as the global reserve currency. All other foreign currencies 
were measured against the U.S. dollar, which created a new financial network known as the 
Bretton Woods System. This agreement allowed currencies to fluctuate within one percent 
to the currencies’ par. 
The Bretton Woods System was in effect from 1944 until 1973, when the agreement to use 
this market ended. The United Kingdom was faced with severe financial problems and began to 
float its currency. This caused other currencies to drop in value and float their currencies as well. 
U.S. President, Richard Nixon is credited with bringing about the free-floating currency system 
that gave rise to the short-lived Smithsonian agreement in 1971. This agreement allowed cur-

rencies to fluctuate within a range of two percent of the currencies’ par. These boundaries were 
found to be too unrealistic and the agreement ended in March of 1973.
1982 marked the first time a currency pair was offered as a purchase option to the United 
States, with more currencies becoming available in 1983. By 1987, both the United Kingdom and 
the United States were trading heavily on the FOREX, but there were many other countries such 
as China, South Korea and even Iran (in 1991) participating as well.

A Beginner’s Guide to FOREX Trading