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What is Forex Trading and How Does It Work

Foreign Exhange Trading

Forex Market Trading

 

If you were wondering, what is Forex trading?  You will find forex trading is nothing more than direct access trading of different types of foreign currencies.  Forex market trading is trading money, currencies worldwide. Mostly, all countries around the world are involved in the Forex trading market, where money is bought and sold, based on the value of that currency at the time.

 

In the past, foreign exchange trading was mostly limited to large banks and institutional traders however; recent technological advancements have made it so that small traders can also take advantage of the many benefits of forex trading just by using the various online trading platforms to trade.

 

Forex Trading Currencies

 

The currencies of the world are on a floating exchange rate, and they are always traded in pairs Euro/Dollar, Dollar/Yen, etc. About 85 percent of all daily transactions involve trading of the major currencies.

 

The currencies that are traded on the Forex markets are going to be those from every country around the world. Every currency has it the own three-letter symbol that will represent that country and the currency that is being traded.

 

What is Forex Trendy

 

For example, the Japanese yen is the JPY and the United Stated dollar is USD. The British pound is the GBP and the Euro is the EUR. You can trade within many currencies in one day, or you can trade to a different currency every day.

 

Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. Here is how they look in the trading market: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. As a note you should know that no dividends are paid on currencies.

 

Forex trading is one ‘setting’ where money is exchanging hands daily, where almost 5.1 trillion U.S. dollars are moved every day – that is a huge amount of money.

 

In 2019, the global foreign exchange (forex) market saw an average daily turnover of approximately 5.1 trillion U.S. dollars. This means that on an average day in 2019, the sum of all transactions in the forex market amounted to almost 6.6 trillion U.S. dollars. (Source: Statista)

 

What is Forex Trading

 

Almost all trades are done through a broker, and almost all trades require some type of fees. So, make sure about the trade you are making before attempting to make too many trades which will involve additional fees. Here is a step by step to start forex trading:

 

Forex Trading Step by Step:

  1. Step 1: Get connected to the Internet.
  2. Step 2: Find an Online Forex
  3. Step 3: Open an Account and Fun Account.
  4. Step 4: Download a Forex Trading
  5. Step 5: Enter Your First Trade

 

You can start forex trading with as little as $10 or less.  There are Forex brokers that have minimum deposit requirements to open an account for $10 while others have a higher minimum starting range from $200 to $1000.

 

Trades between markets and countries happens every day. Some of the heaviest trades occur between the Euro and the US dollar, and then the US dollar and the Japanese yen, and other often trade currencies is between the British pound and the US dollar.

 

As one country opens trading for the day another is closing. The time zones across the world affect how the trading takes place and when the markets are open.

 

If you think one currency will appreciate against another, you may exchange that second currency for the first one and be able to stay in it. In case everything goes as you plan it, eventually you may be able to make the opposite deal in that you may exchange this first currency back for that other and then collect profits from it.

 

Trading

 

Transactions on the FOREX market are performed by dealers at major banks or FOREX brokerage companies. FOREX is a necessary part of the worldwide market, so when you are sleeping in the comfort of your bed, the dealers in Europe are trading currencies with their Japanese counterparts.

 

Therefore, it is reasonable for you to believe that the FOREX market is active 24 hours a day and dealers at major institutions are working 24/7 in three different shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution.

 

Price movements on the FOREX market are very smooth and without the gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is somewhere around $5 trillion, so a new investor can enter and exit positions without any problems.

 

Forex Market

 

The fact is that the FOREX market never stops, even on any day of the week, you could still get your hands on two-side quotes on currencies.

 

The currency market is the largest and oldest financial market in the world. It is also called the foreign exchange market, FX market for short. It is the biggest and most liquid market in the world, and it is traded mostly through the 24 hour-a-day inter-bank currency market.

 

The Forex market is highly profitable with a potential to make huge returns on your initial investment overnight.  That because you can make money even when the Forex currency you are holding goes down.  However, if you are not vigilant you can lose just as much.

 

When you compare them,  you compare the Forex market with the Stock market, you will see that the currency futures market is only one per cent as big. Unlike the futures and stock markets, trading currencies is not centred on an exchange. Trading moves from major banking centres of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S. it is truly a full circle trading game.

 

Related articles:

Trading Forex You Will Be Amazed At This 6 Amazing Benefits

Forex Markets And How It Work

Free eBook The Myths Of Market Trends And Patterns

 

In the past, the forex inter-bank market was not available to small speculators because of the large minimum transaction sizes and strict financial requirements.

 

Forex Trading for Beginners

 

Banks, major currency dealers and sometimes even very large speculator were the principal dealers. Only they were able to take advantage of the currency market’s fantastic liquidity and strong trending nature of many of the world’s primary currency exchange rates.

 

Today, foreign exchange market brokers can break down the larger sized inter-bank units and offer small traders like you and me the opportunity to buy or sell any number of these smaller units. These brokers give any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the big players who once dominated the market.

 

When you are making a transaction from one market to another, involving one currency to another you will notice the symbols are used to explain the transactions. All transactions are going to look something like this EURzzz/USDzzz the zzz is to represent the percentages of trading for the percentage of the transaction. Other instances could look like this AUSzzz/USD and so on.

 

When reading and reviewing your Forex statements and online information you will understand it all much better if you remember these symbols of the currencies that are involved.


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