Beginner Forex traders often need to explain what forex is in the beginning and how it works and is traded in the global financial markets.
This article will provide you with a detailed Forex explanation:
What is Forex?
How does Forex work?
Who Trade Currency Pairs?
What is Forex Trading?
How do you trade in the forex market?
Why Trade Forex?
What is Forex?
Forex (also known as the foreign exchange market) is known as the place where currency pairs such as the EURUSD or GBPUSD are exchanged and invested their price movements in the market to make money. The forex market is an over-the-counter (OTC) market; Investors and traders buy and sell currency pairs through it.
Currencies, in contrast to most other tradable financial assets, are economic tools as much as economic indicators. In other words, if countries were companies then currencies would be their shares.
The Forex market is the most liquid (as well as the most easily accessible). Therefore, it is the most difficult market to manipulate.
What is Forex? It is the largest financial market in the world
Forex is the largest financial market in the world, with more than 5.09 trillion USD traded every day. In other words, in one day, more money will be traded in the forex markets than the value of Japan's GDP! Of these transactions, $ 254 billion is traded through CFDs and other derivative financial instruments.
Being the largest and most active financial trading market in the world, it is also the most liquid market in the world, which means that it is easy to participate and trade currencies for new beginners and enter and exit trades. And for the most liquid pairs, they can trade currencies at a very low cost (even as little as 1 pip!). This also means that the forex market is very volatile, which creates many opportunities for traders to profit from positive and negative moves in currency trading.
Forex trading education
Explanation of Forex Basics
Knowing the vocabulary used by investors and Forex brokers will not make you a successful trader, but it is necessary to know this in order to become a trader in the beginning.
Here are some of the most important forex basics:
Spreads and pips
Contract size / lot
Contracts for difference
Any investor who wants to start trading in the forex market needs to understand how this market works, and he needs to know the basic terms used in that particular market. Starting with a demo trading account is a good way to learn and understand what Forex is.
Forex Explained - What are Forex Price Quotes?
To understand what Forex is it is essential to understand how currency pairs work before going any further. For example, let's take the EUR / USD pair. The euro is called the base currency (or transactional currency), and the US dollar is the counter currency. It gives us a balance of power between the base currency and the counter currency of the exchange rate.
When looking at the EURUSD or other currency pairs on the Red Box trading platform, we can see two prices: the Bid price and the Ask price (Buy). Usually it is displayed as: EURUSD 1.1034 / 1.1035. The asking price indicates that we can buy 1 € at $ 1.1035.
Parallel to this, the bid price indicates that we can sell 1 euro for 1.1034 dollars. It is easy to tell that banks usually sell higher currencies than they are taking in. And they are able to do this because they have more influence than mediators.
Open a trading account
You cannot just buy or sell the euro against the US dollar, as is the case with a company’s stocks for example. The EURUSD currency pair does not really exist. To better illustrate this concept, you cannot buy any commodity in EURUSD; It is not a currency but a currency pair whose prices are pegged together to determine the relative value of their home. Therefore, traders trade the strength of currencies against each other, by buying and selling different currency pairs following their price movements.
In the forex market, profits are achieved through an increase or decrease in the value of a currency in relation to another currency. Suppose you buy EUR and sell US dollars (via EURUSD). To profit from this forex trade, you will have to wait for the euro to rise against the US dollar.
What are the most popular Forex Pairs?
For the forex explanation article to be completely complete, we need to review the most popular instruments or currencies traded that traders have access to.
The most traded currencies are the Euro (EUR), the US Dollar (USD), the Japanese Yen (JPY), the British Pound (GBP) and the Swiss Franc (CHF). Hence, the most popular currency pairs (also known as the majors) are the ones that are most used. The most traded currencies are: the euro against the US dollar, the British pound against the US dollar, the US dollar against the Japanese yen, and the US dollar against the Swiss franc.
Major currency pairs - supply and demand
There are three other currencies that are very frequent in forex trading: the New Zealand dollar (NZD), the Australian dollar (AUD) and the Canadian dollar (CAD). When linked to other currencies in a pair, they are categorized as "crosses": NZDCAD, USDCAD or AUDUSD.
All currency pairs that include the Russian ruble, the Czech koruna, the Polish zloty, the Hungarian forint, the Swedish krona, or the Norwegian krone are considered "exotic" pairs. They account for only 10% of the currency exchange market.
Forex Explanation - What are Forex CFDs?
Forex forex forex forex forex forex forex began. There are two ways to trade Forex: using Contracts for Difference (CFD) or Spot Forex (also known as margin). Spot Forex includes the buying and selling of active service. For example, you can buy a certain amount of sterling against the euro, stop the increase in the value of the pound, then the euro in pounds again, and receive more money than you originally spent again.
CFD stands for "Contract For Difference", and is a contract used to represent movement in prices of financial instruments. In Forex terms, this means that instead of buying and selling large amounts of currencies, you can take advantage of price movements without owning the asset itself. Along with Forex, CFDs are also available on stocks, indices, bonds, commodities, and cryptocurrencies. In any case, CFDs allow you to trade on the price movements of these instruments without the need to purchase them.