What Is Forex Trading?
Forex, or foreign exchange, can be explained as a network of buyers and sellers, who transfer currency between each other at an agreed price. It is how individuals, companies and central banks convert one currency into another – if you have ever travelled abroad, then you have likely made a forex transaction.
Basic tricks to know about forex trade as a beginner while a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken to earn a profit. The amount of currency converted every day can make price movements of some currencies extremely volatile. It is this volatility that can make forex so attractive to traders: bringing about a greater chance of high profits, while also increasing the risk.
Different time zones: London, New York, Sydney and Tokyo. Because there is no central location, you can trade forex 24 hours a day.
There Are Three Different Types Of Forex Market:
1. Spot forex market:
the physical exchange of a currency pair, which takes place at the exact point the trade is settled – i.e. ‘on the spot’ – or within a short period
2. Forward forex market:
a contract is agreed to buy or sell a set amount of a currency at a specified price, to be settled at a set date in the future or within a range of future dates
3. Future forex market:
A contract is agreed to buy or sell a set amount of a given currency at a set price and date in the future. Unlike forwards, a futures contract is legally binding
Most traders speculating on forex prices will not plan to take delivery of the currency itself; instead, they make exchange rate predictions to take advantage of price movements in the market.
What is a base and quote currency?
The base currency is the first currency listed in a forex pair, while the second currency is called the quote currency. Forex trading always involves selling one currency to buy another, which is why it is quoted in pairs – the price of a forex pair is how much one unit of the base currency is worth in the quote currency.
Each currency in the pair is listed as a three-letter code, which tends to be formed of two letters that stand for the region, and one standing for the currency itself. For example, GBP/USD is a currency pair that involves buying the Great British pound and selling the US dollar.
Forex trading – base and quote currency
To keep things ordered, most providers split pairs into the following categories:
Major pairs. Seven currencies that makeup 80% of global forex trading. Includes EUR/USD, USD/JPY, GBP/USD and USD/CHF
Minor pairs. Less frequently traded, these often feature major currencies against each other instead of the US dollar. Includes: EUR/GBP, EUR/CHF, GBP/JPY
Exotics. A major currency against one from a small or emerging economy. Includes: USD/PLN, GBP/MXN, EUR/CZK
Regional pairs. Pairs classified by region – such as Scandinavia or Australasia. Includes: EUR/NOK, AUD/NZD, AUD/SGD
There are a variety of different ways that you can trade forex, but they all work the same way: by simultaneously buying one currency while selling another. Traditionally, a lot of forex transactions have been made via a forex broker, but with the rise of online trading, you can take advantage of forex price movements using derivatives like CFD trading.
CFDs are leveraged products, which enable you to open a position for just a fraction of the full value of the trade. Unlike non-leveraged products, you don’t take ownership of the asset, but take a position on whether you think the market will rise or fall in value.
Although leveraged products can magnify your profits, they can also magnify losses if the market moves against you.
With the Basic tricks to know about forex trade as a beginner, you can be a good trader.
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