This article will give you a forex explanation in detail:
What is forex?
Forex basics?
How forex works?
Who trades on currency pairs?
What is forex trading?
How to trade in the forex market?
Why forex trading?
What is forex?
Forex (also known as the foreign exchange market) is defined as the place where currency pairs such as EUR / USD or GBP / USD are exchanged and invest their price movements in the market to make money. The forex market is an over-the-counter market (OTC); investors and traders buy and sell currency pairs through it.
Currencies, in contrast to most other tradable financial assets, are economic instruments as much as economic indicators. In other words, if countries are companies, currencies will be their shares.
Being the largest and most active financial trading market in the world, it is also the most liquid market in the world, which means it is easy to participate in. And for the most liquid pairs, you can trade currencies at a very low cost (even less than one pip!). This also means that the forex market is very volatile, creating many opportunities for traders to profit from positive and negative moves in currency trading.
Forex basics explained
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 at first.
Here are some of the most important forex basics:
Currency pairs
Spreads and points
Margin
Leverage
Contract/lot size
Trading platforms
Contracts for difference
Swap
Any investor who wants to start trading in the forex market needs to understand how this market works, and also needs to know the basic terms used in this particular market. Starting with a demo trading account is a good way to learn and understand what forex is.
Forex explanation - what are Forex quotes
To understand what forex is it is necessary to understand how currency pairs work before going any further. For example, let'S take the EUR/USD pair e / er. The euro is called the base currency (or transaction currency) and the US dollar is the counter currency. It gives us the balance of power between the base currency and the currency opposite the exchange rate.
When looking at EURUSD or other currency pairs on the red box trading platform, we can see two prices: the bid price (l Xu) and the Ask price (u Xu). It is usually displayed as follows: U 1.1034 / 1.1035. The Ask price indicates that we can buy 1 1 at 1.1035.$
Source: Admiral Markets MT4 - Daily EURUSD chart
In parallel, the offer price indicates to us that we can sell 1 euro for $ 1.1034. It's easy to see that banks usually sell higher currencies than they get. And they can do this because they have more influence than intermediaries.
.. Also, you can not just buy or sell EURUSD, as is the case with company shares for example. Currency PAIRU does not already exist. To better illustrate this concept, you can't buy any commodity in EURUSD; it's not a currency but a currency pair whose prices are pegged to each other 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 made by increasing or decreasing the value of a currency in relation to another currency. Let'S say you buy the euro and sell the US Dollar (EURUSD). To make a profit from this forex trade, you will have to wait until the price of the euro rises against the US dollar.
What are the most popular forex pairs?
For the forex explainer article to be completely complete, we need to review the most popular traded instruments or currencies that traders have access to.
Also one of the most traded currencies is the euro (EUR), the US dollar(USD), the , the British pound (GBP), Japanese yen (JPY), and the Swiss franc (CHF). Hence, the most popular currency pairs (also known as major currencies) are the most used. The most commonly traded currencies are EURUSD, GBPUSD, USD / JPY, and USD / CHF.
Three other currencies are very frequent in Forex Trading: The New Zealand dollar (CAD), the Australian dollar (AUD), and the Canadian dollar (CAD). When linked to other currencies in a pair, they are classified as "crosses": NZDCAD, USDCAD, AUDUSD.
All currency pairs that include the Russian Ruble, Czech Krona, Polish zloty, Hungarian forint, Swedish krone, or Norwegian Krone are considered "exotic" pairs. They account for only 10% of the currency exchange market.
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