What is forex?
Forex is short for "foreign exchange" (sometimes abbreviated to just FX) and is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion.
Now, when we say it is the largest market in the world, we mean it! The largest stock market in the world, the New York Stock Exchange (NYSE), trades a volume of ONLY about $22.4 billion each day.Peanuts!
The FX market is a global, decentralized market where the world's currencies change hands. Exchange rates change by the second so the market is constantly changing.Just like you. Constantly changing your mind whether you want to be a trader or not...
No more excuses! Do it!
When can you trade forex?
The forex market is open 24 hours a day and 5 days a week, only closing down during the weekend.
The forex market can be broken up into four major trading sessions. The Sydney session, the Tokyo session, the London session, and Trump's favorite time to tweet, the New York session. Some traders prefer to differentiate sessions by names of the continent. This is known as the 'forex 3-session system'. These sessions consist of the Asian, European, and North American sessions.
What can you trade in the Forex market?
Trading in the forex market, it will always involve two currencies at a time.
These are called 'currency pairs',
But while you can trade almost any currency pair in theory, there are certain pairs that are consistently the most traded. These are referred to as 'major pairs' or 'majors'. These major pairs make up 80% of the entire trading volume in the forex market
"Major pairs include: EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD."
Understanding currency pairs
Currency pairs are made up of the base currency and the quote currency. The difference in price is where you'll make your profit or loss.
The currency that is listed first is called the base currency, and the currency listed second is called the quote (or counter) currency.
Understanding forex terminology
What's a base currency?
This is the first currency set that appears in the forex pair. It's the one that's bought or sold for the quote currency. In the example above, the GBP is the base currency.
What's a quote currency?
This is the second currency that appears in the pair, and is also known as the 'counter currency'. In the example above, the USD is the quote currency.
What's a bid price?
This is the price that a trader is willing to buy a currency pair at. It constantly fluctuates.
What's an ask price?
This is the price that a trader would ask for when selling the currency pair. The ask price also changes constantly and is driven particularly by market demand.
What's a spread?
The difference between the bid and the ask price is called the spread.
What's a pip?
Pip is an abbreviation for point in percentage and is the unit of measurement used to express the change in value between two currencies.
What are the minors?
Currency pairs that don't include the U.S. dollar in their pairing are known as the minors or the crosses.
The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.
What are exotic currency pairs?
Exoti... you're probably thinking exotic countries and exotic belly dancers, but let me stop your imagination there.The label has nothing to do with the location or size of the country (or the number of belly dancers) where the currency is used.
Exotic currency pairs are made up of one major currency paired with the currency of an emerging economy, such as Brazil, Mexico, Chile or Hungary.
How does forex trading work?
To trade forex is to essentially buy and sell currencies - with the aim of making some big bucks along the road.Or in other words, you hope that the currency you bought will increase in value compared to the one you sold.Unlike many other financial markets, forex traders can make money on the up when things are going well in the world and also on the down, when things aren't going so well...
But before you start making money, you need to determine whether you want to buy or sell, or in forex terms take a long or short position.
Long vs Short Positions in Forex Trading
If you want to buy (which means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price.
In trader talk, this is referred to as 'going long' or taking a 'long position'.
Remember: long = buy.
If you want to sell (which means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price.
This is referred to as 'going short' or taking a 'short position'.
Remember: short = sell.
How do I start forex trading?
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