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.

What You Stand To Benefit in Forex currency trading

It is an eternal truth that men will relentlessly flood a venture that has proven to have many benefits. Similarly, the forex currency trading market will not be an exception. What then are the advantages of this undertaking?

Equal Potential in Rising or Falling Market Trend

There is no partiality here as in other markets, no restrictions on short selling and no barrier. You have the opportunity to participate in a rising and falling market. You can make money anytime of the day, regardless of the fall or rise period of a country’s currency.

Trade Forex 24 hours a day

The forex market doesn’t sleep. It is open 24 hours so that you can respond to the latest currency movements and news right away. Starting from Sydney every Sunday night, followed by Tokyo, Singapore, Hong Kong, London and finally, New York, you can always be on top of the latest trend. As a result of time flexibility, you can also choose the best time for you to trade which gives you the opportunity to be a part time or full time trader.

High Leverage Margin

Majority of brokers offer trade margin of between 50:1 to 400:1 of trade margins for traders and this is one of the things that make the market fascinating. With a little amount of say $100 and if you are on an account with 200:1 leverage, you can purchase currency worth $20,000. That is the power inherent in this business.

Trade from anywhere in the world virtually

With your computer connected to the internet or with your smart phone, you can trade from anywhere in the world. In fact, you can trade in your bedroom or when you are cooling off in the toilet, (don’t mind me!). I’m only trying to let you feel the independence involved in this trade.

High Liquidity Market

With a turnover of over $1 trillion daily, it is undoubtedly the most traded market in the world. This makes it easier for traders to cash in or cash out their capital in the market at any time of the day and from any part of the world.

Ability to Profit from a Bull’s or Bear’s Market

No matter where the market is moving to, either up or down, you can profit from each movement. You can either take a long or short position and there is no commission or chargeback. You only pay a spread which is the difference between the bid and ask price.