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- What is Foreign Exchange
- The Forex Market
- Currency Pairs
- Basic Forex Terms
- What affects the Forex Market?
What is Foreign Exchange?
Foreign exchange, more commonly known as Forex or FX, relates to buying and selling currencies with the purpose of making profit off the changes in their value. As the biggest market in the world by far, larger than the stock market or any other, there is high liquidity in the forex market. Therefore, the forex market attracts many traders, beginners and experienced alike.
The Forex Market
With approximately $4 trillion USD traded in the market every day, the forex market has the highest liquidity in the world. Basically, this means that one can buy almost any currency he wishes in high volumes while the market is open.
The forex market is open 24 hours, 5 days a week – Monday to Friday. Trading begins with the opening of the market in Australia, Asia, Europe to follow and then the USA and Canada until the markets close.
The forex market start time during the summer is on Sunday at 9:00pm GMT, and ends at 9:00pm GMT on Friday. In the winter it’s 10:00pm-10:00pm accordingly.
That results with currencies being traded at all times, day or night. Unlike some other instruments, where a downfall of the market would leave traders with untradeable assets, the forex market can always find a buyer or a seller.
There are hundreds of currencies in the world, and each has a three letter symbol. American Dollars are USD, Euros are EUR, Swiss Francs are CHF, British Pounds are GBP and onwards to all the currencies.
Currencies are divided into two main sorts – Major currencies and minor ones. The major currencies are derived from the most powerful economies around the globe – the US, Japan, the UK, the Euro Zone, Canada, Australia, Switzerland and New Zealand. Together with the other currencies they create forex pairs.
When going to a store to buy groceries, we need to exchange one valuable asset for another – money for milk, for example. The same goes for trading forex – we buy or sell one currency for the other. The currencies in the pairs are referred to as one against another.
There are three types of forex pairs; Major pairs, Minor pairs and Exotic pairs. The major pairs always involve the USD, and are the most traded ones.
In the minor pairs the major currencies are traded between each other, excluding the USD. These can be EURGBP, CHFJPY and others.
The exotic pairs have one major currency and one minor, such as EURTRY, USDNOK and many more.
Forex Trading Basic Terms
The most popular pair traded is the Euro vs. the American Dollar, or EURUSD. The currency on the left is called the base currency, and is the one we wish to buy or sell; the one on the right is the secondary currency, and is the one we use to make the transaction.
Each pair has two prices – the price for selling the base currency (ask) and a price for buying it (bid). The difference between them is called a spread, and represents the amount brokers charge to open the position.
The more a currency is traded, i.e. high volatility, its spreads will be narrower. The rarer the pair is, the wider the spreads will be.
Usually a quote will be presented with four numbers after the dot, for instance 1.2356. In the case of EURUSD it means for every Euro the trader wishes to buy he will have to invest 1.2356 US dollars.
Any change in the currency value will usually be seen on the fourth figure after the dot, mainly known as a pip. The spreads, gains and losses will usually be presented in pips.
Some other terms of the online forex trading world are Going long and Going short, which stand respectively for ‘buying’ and ‘selling’.
A trader who speculates the market will rise is called a ‘Bullish Trader’, while on the other side stands the ‘Bearish Trader’, who is more on the defensive side.
In accordance, the terms ‘Bull Market’ and ‘Bear Market’ are used to describe the way the market goes.
A bull market is on the rise, and a bear market is usually decreasing. Experienced traders will decide their strategy depending on the market trends, and will make sure to follow all relevant events so they can precede the changes in the market and gain profit.
In the past, every trader called his broker and instructed him on actions to be made. Today the trades are done directly by the client on a software, called a trading platform.
Many of the platforms are available for computer, internet and mobile. Every trader has his own strategy, and he should find the platform that will enable him to perform it in the best way possible, i.e. that he will feel most comfortable in.
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What affects the Forex Market?
The forex market has high liquidity, due to an elevated supply and demand rate. Traders apply transactions based on financial events, as well as general events. Naturally, when a currency will be on a high demand, its value will raise comparing to the other currencies, and vice versa.
Financial events are frequent statements by countries, central banks or other financial institutions, on topics such as unemployment rate, manufacture numbers and many more.
A decrease in a country’s unemployment rate can indicate that the economy is strong, and this can lead to an increase of the local currency.
If it’s a major one it will affect other currencies as well. Before the event takes place traders speculate on its content, and based on these speculations open positions. All the events can be seen and followed on the economic calendar.
Going back to the popular trading pair – the EURUSD. Once logged into the platform the trader will check the ask and bid prices; for the purpose of the example they will be 1.2356 (ask), and 1.2359 (bid). The difference, as noted, is of 3 pips and this will go to the broker.
If the trader believes the Euro will go up he will enter a ‘buy’ command. Then he will be required to select an amount – say 10,000 units. The price for that is $12,356, and using leverage it comes to $30.89. If the market responded the way the trader predicted and the Euro rose from 1.2356 to 1.2360 – 4 pips, the trader would have made a profit from this trade.
Why Trade Forex with Friedberg Direct?
When trading forex, as well as any other instrument, you must be able to trade with confidence. Profits can never be guaranteed, and any type of trading has its advantages and disadvantages, as well as the risk of losing funds.
At Friedberg Direct we are committed to a set of values which define our relationship with our customers. As such, we provide the best trading experience possible, offering top notch 24/5 technical support and the most advanced and user-friendly trading platforms, including Metatrader and Options trading app.
You can also use our teaching materials in the education tab on out site. You will find there a wide collection of articles, video tutorials, and many more tools that will assist you in every step of the way.
We know trading might be a bit overwhelming and even scary at times, but we do all we can to make sure you are fully prepared to begin trading in the real world.
These tools and many others allow you to trade peacefully and know that Friedberg Direct has your back. Everything we provide is on the highest possible level, and we go to great measures to constantly innovate and improve them for you.
Join Friedberg Direct today and enjoy the best trading experience you can get!
- How does forex work?
Forex is a peer-to-peer exchange in the over-the-counter market. This means there is no centralized forex exchange like there is in the equity markets. Instead the forex market is run by the global network of banks and other institutions. With no central location forex markets trade continually around the world, and trades can be conducted 24 hours a day from all corners of the globe. Because most traders will never take physical delivery of the currency, they are trading derivatives are used to trade price changes in the markets. This allows a trader to speculate on price movements without taking ownership of the asset.
- What are the three different types of forex market?
There are three ways you can trade in the forex markets. The first of these is the spot forex market. This is where there is a physical exchange of the currency pair that occurs when the trade is settled. It is mostly banks and large institutions that take part in the spot market, but brokers like Friedberg Direct offer derivatives based on the spot forex markets. Next is the forward forex market, which is where there are private agreements to buy or sell a certain amount of currency at a certain time or times. And then there is the futures forex market, which is similar to the forward forex market, except in the futures market the contracts can be traded on futures exchanges.
- Is forex a good idea?
There are millions of forex traders all around the world, and all of them believe that trading the forex markets is a good idea. They have come to the online forex markets to explore the potential for opportunity and profits. Many of them believe that the forex markets are the best markets to trade, and yet each has their own reasons for trading these markets. The forex markets have a lot to offer all kinds of traders, and there are many reasons why forex is a good plan. These reasons include the accessibility of the market, the regulations that provide safety, the possibilities extended by trading forex, and much more.