Understanding the Forex Market

Discover the core mechanics of global currency exchange and evaluate how institutional trading models create unmatched career leverage.

What is Forex?

Forex is buying and selling foreign currencies (Foreign Exchange). Any form of currency conversion that happens is part of the Forex Market, for example, conversions during import/export, OTC (over the counter) transactions, travel, etc.

$10T

Traded Daily

30x

Larger than NYSE

900x

Larger than LSE

It’s a market where about 10 trillion-dollar transactions happen every day, 30 times larger than the New York Stock Exchange (NYSE) and 900 times larger than the London Stock Exchange (LSE).

It’s a decentralized market. So, changes in the exchange rate happen due to many unanticipated factors.

How does it work?

Exchange happens based on currency pairs and the conversion rate of that pair. For example, EURUSD is a pair, and let's say the exchange rate today is 1.13. Which means if you convert 1 Euro you will get 1.13 USD.

This price is tracked at the fifth digit after the decimal point. At one point in the day, the rate might be 1.13245, and after 1 hour it may change to 1.13260. Which means EUR got 15 points stronger than USD. So, if you bought 100,000 EUR and sold after 1 hour, you would have made a profit of 15 EUR in 1 hour.

How do I do Forex trading?

Forex trading can be done online. You can open an account with a broker and deposit your capital. Then use an app like MetaTrader to place the buy/sell orders.

When you place an order, your deposited currency is converted to the base currency. For example, your deposited currency was USD. Then you place a buy order for 1,000 dollars for the GBPJPY pair (GBP is the base currency here). Your 1,000-dollar capital will be converted to an increased amount, for example, 100 times more than the actual. This concept of increasing capital is called “Leverage”.

💡 Understanding Leverage

Leverage is offered by the broker. Leverage is a way of lending capital to the trader. A 1:100 Leverage means your capital of 1,000 dollars will have a buying power equivalent to 100,000 dollars (1000 x 100).

Why do brokers offer Leverage? It’s because retail traders usually have a very small capital to trade to make a reasonable profit. For example, according to the earlier example (15 EUR profit from 100,000 EUR in 1 hour), you would make only around 15 cents with a 1,000 dollar deposit. So, this is not very attractive. But with leverage you would make 15 dollars which would be great! Because brokers offer Leverage, it feels appealing to people to trade.

If you make a profit, the broker gets a commission. But if you lose, you lose your own capital. The broker doesn’t lose anything. Because they take a commission from every type of order, let it be a buy order or a sell order. Your trade will automatically stop when you run out of capital.

So, coming back to how a trade is executed. Your capital will be leveraged and converted to equivalent GBP and held for a duration until you close the order or your account wipes out. If the price increases, then the trade will close with a profit. In case of a loss, the trade will close after a 1,000-dollar loss (if you have set a fixed stop) or until your account wipes out if your capital is greater than 1000 dollars.

Why is Forex Trading such a great career option?

Forex Trading is a great career option for multiple reasons:

📉 Less capital needed

Less capital is needed to make a high profit. This is possible due to the “Leverage” offered by the broker.

🏢 Capital is optional (Prop Firms)

There are funding companies who will provide a very good amount of capital for a very small fee. (the capital they provide is usually up to 400K, but can be scaled up to 2 million later.) These companies are called Prop Firms. To obtain capital, you must first prove your trading skills by making a reasonable amount of profit (usually 10% to 15%) by participating in a challenge. The firm will provide you with a demo account with a balance, for example, 100K USD.

You have to pay a small fee to participate in the challenge. The fee might be around 500 USD for a 100K challenge. Once you pass the challenge, they will pay back the fee you paid to participate. So, it’s possible to build your trading career without a trading capital.

📈 Exponential Growth

A highly competent trader makes about 5% to 10% profit per month. Which is about 60% to 120% profit in a year. So, the capital usually grows double every year.

• Generally, any business is considered profitable if it generates at least 30% profit in a year. An annually doubling profitable business is rare.
• Any form of investment usually returns about 8% to 10% profit, for example, a Fixed Deposit in a bank.
• A job usually provides a 5% to 10% increase in salary every year.

🌍 Ultimate Freedom

Trading will give you the ultimate freedom. It will provide you with three types of freedom - money, time, and location. The financial growth it will provide you from the second or third year onward will be unmatched by any other career option.

Once you achieve competency, you will need to trade for about 3 to 6 hours per day, 5 days a week. You take your own days off. There is no boss, no permission needed. You can trade from anywhere in the world; you just need a laptop with an internet connection.

⚡ Fast Career Build-up

It takes about 1 to 2 years to start earning a decent amount of money (5K to 10K USD) to afford a good living standard almost anywhere in the world. This is a very shorter time compared to most other career options.

To earn a handsome salary in any discipline, you have to get a bachelor’s degree (4 years) and 3 to 4 years of experience at least. So, to be a doctor or engineer, 7 to 8 years of time investment is needed to start a good earning. I would not say it’s easy to learn Forex trading. But, in my opinion, the overall effort needed for Forex would be lot lesser than any other job or business.

How does the Monthly Profit Footprint Look Like?

With a currency pair like EURUSD or GBPUSD the price moves around 100 to 400 PIPs in a week depending on the market condition. A PIP is the fourth digit in the exchange rate. So, price change from 1.30500 to 1.30550 would indicate an increase of 5 PIPs. It’s possible to capture a 50 to 60 PIPs move once or twice a week. Each capture would be a trade, in case of increase it would be a buy order and in case of decrease it would be a sell order. This way there is a possibility of getting 4 to 8 trades per month.

In a 100K funding account, each trade can be a size of 500 dollars. Which is 0.5% risk per trade. The challenge has a rule of losing maximum 10% before failing it altogether. So, the max loss allowed would be 10K. With a 500-dollar risk you would be able to lose a maximum of 20 trades in a row. With a profitable strategy losing so many trades in a row should not be a case normally.

Usually, it’s possible to win 2 to 4 trades on a regular month. It would be possible to make around 2500 dollars from each winning trade. So, monthly profit would be around 5K to 10K. The market condition normally changes from month to month. So, win rate would change too. Some months, there may be no profits, some months average, and some months high. (Please note during December it is not recommended to place any trade due to the Christmas holidays.)

The monthly profit breakdown for a year may look like this:

Duration	Performance Details	Calculation	Total Profit
1 Month	December – no trade	0 K	0 K
3 Months	0 wins each month	0 K × 3	0 K
4 Months	2 wins each month	5 K × 4	+20 K
4 Months	4 wins each month	10 K × 4	+40 K
12 Months (Total)			+60 K

With a 100K funded account it is possible to make a profit of 60K per year, i.e. 5K per month on average. At one point (after at least 1 year of consistent profitability) the risk could be increased from 0.5% to 1% per trade. Then the profit would increase from 60K to 120K per year. That is, the capital doubling each year thereafter.

Is Forex Trading Legal in Bangladesh?

Online Forex Trading in general sense is illegal in Bangladesh. Why is it so? Generally, to trade Forex one needs to deposit foreign currencies in a Broker account to use as his capital. Buying and depositing foreign currencies through an unauthorized channel is illegal in Bangladesh. Doing so directly impacts the country’s foreign reserve. This way money moves outward of the country, which is essentially a form of money laundering.

The Compliant Alternative: Academic Study & Prop Environments

However, learning Forex for academic purposes or trading Forex without depositing foreign currencies to a Broker account is not illegal. It’s possible to trade without depositing foreign currencies into a Broker account. It’s possible through Prop Firms. To participate in a challenge, you don’t have to make any deposits. To pass the challenge you will trade in a demo account with virtual money.

Once you pass the challenge you will receive the capital from the Prop Firm which will reside in your Prop Firm account. When you start making profits with that capital you will be eligible to get the profit as payouts.

At this point you can get a residence visa in a country where Forex trading is legal. For example, some of such countries are UAE, Singapore etc. You will be able to afford the residence permit as you will be able to make sufficient profit from Forex trading. You will have the option of making periodic visits to that country or you may also stay there as long as you have the visa. Once you get the residence visa in that country you can then send money to Bangladesh as remittance. This way money will move inward and enrich foreign reserve of Bangladesh.

📌 Strategic Recommendation

It is also generally recommended for a trader to verify his trading skills by participating in a Prop Firm challenge even if the trader resides in a country where Forex trading is legal. Because Prop Firms imposes some strict risk management rules which are essential to make consistent profit without risking the trader’s own capital. This way the trader won’t need his own capital at any time.