Forex trading

Forex trading 2018-04-10T09:16:10+00:00

What is forex?

FOREX – is Foreign exchange market, where banks, businesses, governments, investors and traders come to exchange and speculate on currencies, but also on commodities/indexes/ stocks.

The Forex market is the space in which the currencies are exchanged. There are many currencies in the world, and whenever you try to exchange your currency for another one for different purposes, you automatically deal with the Forex market. However, one can also try to make profits by speculating on the price movements. It is the same like trying to profit from the real estate market by purchasing a house and selling it for a higher price sometime in the future. So, the Forex market is about the currency pairs like EUR/USD, USD/JPY, EUR/GBP, and more. The daily trading turnover exceeds 5 trillion, which makes the foreign exchange market the largest one.

The totality of operations made with the currencies forms the foreign exchange market, or briefly called Forex.
The market was founded in 1976, when all the nations of the world rejected the “gold standard” and went over to the Jamaican system, which implies the free exchange of currencies. Forex has become a must for the proper functioning of the world economy and the flow of capital between countries.
The specific thing about the Forex market is that it is not controlled by any government or structure, so it is not monopolized. Also, it is the biggest market in the world, with a daily turnover of over 5 trillion US dollars.
Forex is also used to express the currency pair trading process. With the help of the Internet, the traders have the chance to trade on special platforms or terminals and deal with brokers. This allows market participants to trade Forex from anywhere on Earth.

How do forex work?

Forex trading is about generating profits from the currency pair’s price movements.
In practice it is about opening positions on a platform. There are two types of positions:
BUY (long position)- when you expect a growth of the exchange rate;
SELL (short position)- when you expect a drop in the exchange rate.
If your expectations are becoming real, then you get a profit based on number of pips.

Opportunities in Forex

Just like stocks, you can trade currency based on what you think its value is (or where it’s headed). But the big difference with forex is that you can trade up or down just as easily. If you think a currency will increase in value, you can buy it. If you think it will decrease, you can sell it. With a market this large, finding a buyer when you’re selling and a seller when you’re buying is much easier than in in other markets. Maybe you hear on the news that China is devaluing its currency to draw more foreign business into its country. If you think that trend will continue, you could make a forex trade by selling the Chinese currency against another currency, say, the US dollar. The more the Chinese currency devalues against the US dollar, the higher your profits. If the Chinese currency increases in value while you have your sell position

You can trade currency based on what you think its value is (or where it’s headed). But the big difference with forex is that you can trade up or down just as easily. If you think a currency will increase in value, you can buy it. If you think it will decrease, you can sell it. With a market this large, finding a buyer when you’re selling and a seller when you’re buying is much easier than in in other markets. Maybe you hear on the news that China is devaluing its currency to draw more foreign business into its country. If you think that trend will continue, you could make a forex trade by selling the Chinese currency against another currency, say, the US dollar. The more the Chinese currency devalues against the US dollar, the higher your profits. If the Chinese currency increases in value while you have your sell position open, then your losses increase and you want to get out of the trade.

How to buy and sell Currency

All forex trades involve two currencies because you’re betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell. The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.

Let’s say you think the euro will increase in value against the US dollar. Your pair is EUR/USD. Since the euro is first, and you think it will go up, you buy EUR/USD. If you think the euro will drop in value against the US dollar, you sell EUR/USD.

If the EUR/USD buy price is 0.81755 and the sell price is 0.81758, then the spread is 0.3 pips. If the trade moves in your favor (or against you), then, once you cover the spread, you could make a profit (or loss) on your trade.