Basic Knowledge About Forex

What Is Foreign Currency Exchange (Forex) Trading?

Forex is a short form of Foreign Exchange and it refers to the foreign currency exchange market, which is the largest trading market in the world. About $1.9 trillion is traded daily which is about 30 times bigger than the total volume of the U.S. equity trades. The market is very unique because it runs for 24 hours, excluding weekends, which gives traders the opportunity to trade at convenient times.

Forex involves the concurrent buying and selling of a currency pair. The currencies are quoted in pairs and they are traded against each other. For instance, USD/JPY means the US Dollars and Japanese Yen pair. Other major currencies that are traded against the US Dollar are Euro (EUR/USD), British Pound (GBP/USD) and Swiss Franc (USD/CHF). Other popular currency pairs are EUR/GBP and EUR/JPY.

Moreover, within a currency pair, the first currency is referred to as the base currency while the second one is called the quote or counter currency. Forex quotes are listed in terms of the base currency. For example, a quote of ‘EUR/USD = 1.6551’ means that 1 Euro is equivalent to 1.6551 Dollar. But if you ask for a currency quote, you would be given two prices; the bid price and the ask price. The bid price is the price you will get if you want to sell a currency while the ask price is the price you will get if you want to buy a currency.

For example, if you demand for a currency quote for EUR/USD, you will be given something like this; ‘EUR/USD = 1.5670/75’. What this means is that the bid price for the EUR/USD at the time of your request is 1.5670 while the ask price is 1.5675. This rate varies from time to time and this gives rise to a term called pips, which is the smallest movement a currency quote can have. For example, if the bid price of EUR/USD moves from 1.5670 to 1.5674, it indicates that it has moved by 4 pips. The value of 1 pip is $1 for a mini lot account (10,000) and $10 for a lot account (100,000).

The thrilling thing about forex trading is the ability of traders to respond to money-value market fluctuations at any time of the day. These fluctuations are caused by economic, social and political events across the world. Consequently, it has attracted a great number of people who are ever eager to exploit these situations. Details Here