Nursery - Chapter 1

Ladies and gentlemen, boys and girls, welcome to Trade Tab University, your essential education in the foreign exchange (forex) market.

What you are about to read could potentially change your life. There is a stark difference between this being your first step toward the top of the trading world and ending up sleeping on the street hoping the Euro will drop. While we are here to assist you in understanding the forex market, the outcome of your efforts is ultimately up to YOU! Here at Trade Tab University, we understand how difficult it is to filter through the overwhelming amount of misinformation online. That’s where we come in— providing you with key knowledge and insights to prepare you for the world of trading. We will debunk rumors and clear up many misconceptions about this market. We’ve designed eight levels of education, much like school, but rest assured there are no early morning classes or teachers droning on. This is you vs. the market! Learn at your own pace and convenience. So grab your lunchbox or your cocktail—whatever your preference—and let’s begin your first day at Nursery.

What is FX?

Before you imagine yourself as the next Leonardo DiCaprio conquering Wall Street, allow us to break down and explain exactly what trading in the foreign exchange market involves. Don’t worry—you can still be the wolf, just maybe not as dashing as Leo. In the forex market, we buy and sell currency pairs. These pairs are traded against one another, such as the Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). The battle of currencies happens around the clock, five days a week, while we traders sit back and observe from anywhere in the world using our laptops or mobile devices. For example, when trading forex, we can profit from the fluctuations of currencies due to fundamental factors such as global news, and technical analysis of price action, key levels, breakouts, and reversals. Previously, large financial institutions, corporations, central banks, hedge funds, and the extremely wealthy dominated the currency markets. But the internet has changed everything. Now, even the average investor (that’s you!) can trade currencies electronically. Yes, the internet has more uses than just cat videos and annoying ads!

History of FX

Many of you may be tempted to skip this section, but trust us—there’s nothing more embarrassing than calling yourself a forex trader without knowing where the market came from. We promise not to bore you, but it’s essential to understand a few key events that shaped the forex market and trading as we know it today.

The Gold Standard (1875)

The year 1875 marked the creation of the gold monetary system, which led to the global economic growth we see today. Before this, countries used gold and silver for international payments. However, fluctuations in gold and silver value, based on supply and demand, made this system unstable. This led to the adoption of the gold standard, where paper currency was backed by a fixed amount of gold.

The Federal Reserve (1913)

The establishment of the Federal Reserve (the Fed) came at a pivotal moment for global wealth and power. The Fed now dictates global fiscal and monetary policies. Take a look at a U.S. dollar note, and you’ll see the words "Federal Reserve Note," issued by a private banking system.

World War I (1914-1918)

As military spending increased during World War I, European nations began printing more money. However, there wasn’t enough gold to back the extra currency, revealing the first cracks in the gold standard. Bretton Woods System (1944) In the aftermath of World War II, the U.S. dollar became the world’s reserve currency, replacing the gold standard. Three international organizations were created to support global trade and finance: the International Monetary Fund (IMF), the International Bank for Reconstruction and Development, and the General Agreement on Tariffs and Trade (GATT), which evolved into the World Trade Organization (WTO). However, by 1971, the U.S. treasury’s gold reserves were too low to continue backing the dollar. President Richard Nixon was forced to abandon the gold standard.

Advantages of Trading FX

Millions of people are discovering the benefits of trading forex and how it can potentially improve their lives. Whether it’s for fun, part-time trading, or dedicating your life to market mastery, forex offers many advantages.

- Liquidity

With an estimated $4 trillion traded daily, the forex market offers unparalleled liquidity. The more participants, the more wealth, and the more opportunities for success.

- Freedom to Buy or Sell

Unlike other markets with restrictions on short selling, the forex market allows you to buy or sell whenever you want. You control when, how, and at what price you trade.