Forex Trading: What is Forex?
Forex trading is the term used to describe individuals who trade in foreign currencies to earn financial gains or to earn money. It could be those who wish to make money from fluctuations in the currency's value; or a hedger looking to safeguard their assets in the event of a negative move against their currencies.
Forex traders could be any trader who is using an retail platform, a bank trader who uses their institution platform, or hedgers who are or managing their own risk or outsourcing the responsibility to an individual bank manager or money manager.
Forex Trading: The FX Market
The market for foreign exchange (or forex) is a an open market that permits the sale and purchase of currencies. Instead of being on an exchange that is centralized it is conducted through an over-the-counter (OTC).
It is likely that you have been involved in the market for foreign exchange, whether by buying foreign currency or purchasing clothing and footwear from abroad. The Forex market is attractive to the market for a variety of reasons.
- The FX market is massive.
- You can trade a variety of currencies
- Different levels of volatility.
- The transaction costs are minimal
- Trading is open all hours of the day during the week.
This article is intended for traders of all levels. This article can help you start your journey into forex tradingor increase your knowledge.
Forex Trading There are Two Sides to Every Market
The method of quoting prices is among the most unique features of the Forex market. The only method of pricing the value of a currency is to use other currencies, since currencies are the basis of the financial system. This results in a relative value measurement, which can be difficult at first, but it becomes more popular when one is more accustomed to this two-sided system.
Pairs of Forex trading gives traders a little more flexibility. The traders or investors can express their opinions on any currency they want to.
Let's take the Euro as an illustration. An investor might be optimistic about the European economy, and thus is likely to purchase the currency. Let's say that the investor is bullish about the US economy, but is sceptical about the UK economy. In this scenario the investor does not have to purchase the Euro in USD against the US Dollar. This would be a lengthy EUR/USD transaction. Instead, they could purchase the Euro against the British Pound (going long EUR/GBP).
This allows the trader or investor more flexibility. Instead of "going short' on US Dollars to purchase Euros, they could purchase Euros and short the British Pound.
Forex Trading: Base v/s Counter Currencies
A Forex quote is distinguished by one key difference: the convention. The first currency used in the quote, which is referred to as the "base" currency of the pair, is the currency that is being quoted. The second currency of the pair is referred to as the "counter currency". It is the standard of a quote, or the currency that is used to determine the value of the currency that is quoted.
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