4 Weird Things to Know About Forex Trading

Forex

Shubham Kumar

May 28, 2021 — 5 min read

Entrepreneurs are always looking for fresh ways to make money. Whether it’s meant as a side hustle, a means of long-term investment, or even a way to fund a business venture, there’s always some sort of financial effort underway. And as we covered in Weird and Creative Ways With Which People Actually Made Money there are some bizarre ideas that come up. A true entrepreneur, after all, can see an opportunity to make money in just about anything!

Often enough though, entrepreneurs will turn specifically to investment markets. These are spaces in which money can be made to grow, often without too much effort, and they can thus be appealing to people who might otherwise be busy starting or running businesses. A few years ago, Forbes took a look at some of the investment opportunities more entrepreneurs were exploring, including gold, real estate, and even startup funding. One that they left out though was forex trading.

The forex market is a world unto itself, and one that is different from any other investment opportunity, despite some fundamental similarities with stock market trading. Given that it’s also the world’s busiest investment market though, we have to assume it’s one that some entrepreneurs give some thought to as they look for ways to grow their wealth. So, as something of an introduction that goes beyond the basic introductory stuff (which you can read about anywhere), we thought we’d highlight a few weird things to know about forex.

Every “Major” Pair Features The U.S. Dollar
Forex Dwarfs The New York Stock Exchange
3 - Assets Move In “Pips” Not Units
Forex Is Now (Sort Of) Using The Blockchain

Every “Major” Pair Features The U.S. Dollar

Forex is traded in pairs, such that you’re always buying or selling one currency against another. So, for example, many will trade the EUR/USD pair, buying or selling the Euro at its value against the U.S. dollar. One thing you’ll quickly learn if you start to explore the forex market is that some of these pairs are traded more than others. And one bizarre feature of forex is that the pairs unofficially designated as “major” — the most heavily-traded pairs on the market — universally feature the U.S. dollar. This may not be surprising when you think about it, given that the USD is still viewed as the world’s reserve currency. But it can be a bit strange to jump into a global market of currencies and see USD seemingly everywhere.

Forex Dwarfs The New York Stock Exchange

When you think about the different investing markets in the world, it’s likely stock exchanges that come to the forefront of your mind. And when you think of those, it’s probably the big ones that you think of first: the Shanghai Stock Exchange, the Nasdaq, the New York Stock Exchange, etc. These indeed represent some of the largest exchanges in the world by market cap, with the NYSE leading the way according to World Atlas. But the forex market dwarfs even the NYSE. It is — by far — the lagers trading market in the world. This can make it somewhat intimidating, but most of all it actually makes for favorable trading conditions due to high liquidity.

3 - Assets Move In “Pips” Not Units

In forex, you can’t really express currency price changes in terms of units, because each pair involves two entirely different currencies. Furthermore, most of the movement on a day-to-day basis is marginal, such that it involves only fractions of units anyway. This is where little things called pips come into play. As described in a write-up by FXCM, a pip is a measurement expressed in decimal points that is the “smallest tradable value” of a currency pair. If EUR/USD is trading at 1.1573, a pip would be a single digit at the fourth decimal point (or 0.0001). It may sound like random terminology, but it actually comes in quite handy in that it allows forex traders to measure changes in pips.

Forex Is Now (Sort Of) Using The Blockchain

If you have much awareness of the blockchain, you probably know that it’s the engine that drives cryptocurrency. Well, despite the fact that cryptocurrency is not included in the trading in the forex markets, the blockchain sort of is. It isn’t exactly the norm yet, but more and more forex brokers and financial institutions are starting to experiment with running transactions through the blockchain. This shouldn’t make a huge functional difference to most traders, though it may marginally improve security and efficiency. Still, it’s worth knowing that blockchain tech may be involved so that you’re not surprised by it.

It’s a different kind of market, but one you can actually get the hang of pretty quickly. And for entrepreneurs, it’s one more avenue through which some side income might be generated.

FAQs

What is Forex Trading?

Forex trading is the process of speculating on currency prices to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, a trader is speculating on whether one currency will rise or fall in value against the other.