For those of you brand new to the world of currency trading, the Foreign Exchange Market is like that new roller coaster at the amusement park. It’s huge, it looks scary, the line is incredibly long, and despite how much your palms are sweating, you’re still rather anxious to get on there and take it for a spin. Luckily for roller coaster riders, though, not nearly as many fall of as they do when jumping onto Forex.

Part of the reason many people fail to make their money back in the Foreign Exchange Market is because they cannot understand the distinctive elements of Forex. These elements are very important to any new trader, and a failure to properly understand them will result in your money falling into the abyss and never being seen again.

Before you run out and open up a Forex account and invest your money, let’s talk a little bit about the three important elements—among many elements, of course—in the Foreign Exchange and how they work in your advantage.

Functional

This element is important to understand because Forex functions entirely by transferring purchasing power of currencies between countries. Every time a trade is made, partners are converting those currencies into their home country’s domestic value.

So, of course, when your country’s currency is strong, another’s might be weak. So you need to understand the function here and realize that you need to trade based on the strength of your currency vs. another currency, not simply on the strength or weakness of an outside currency.

Geographical

The geographical element is important to understand because it is quite overwhelming. The Foreign Exchange Market encompasses the entire globe and is open 24 hours a day, 5 days a week.

It is important to understand the globalization of the marketplace and to use it to your advantage. If you are looking to trade currencies that will do well vs. your currency, then you may need to change the time of day you’re trading.

Participant

There are five different types of participants in the Forex market, spread out over two main parts of the market – the interbank, or wholesale market, and the retail market, where the clients are. Understanding the players will help you understand the game.

The most important thing to focus on here is the second type of participant, and this is you – the everyday trader. You will be trading alongside investment firms and other big players as well; this is how they invest. Learn all about the market’s participants and stick with your own kind if you’re hoping to profit.

There is obviously a lot of risk involved in Forex, but there are also big rewards. Study up on these three elements to improve your chances for success.