Forex trading

DEFINITION of Forex trading

Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit.

WHAT IT IS IN ESSENCE

It is also FX trading, foreign exchange or currencies trading.

Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons. Including balancing the markets, facilitating international trade and tourism, or making a profit.

You can trade currency in pairs, in both spot and futures markets. The value of a currency pair is set by economic, political and environmental factors. Such as wars, natural disasters, or national elections.

Forex trading is always over-the-counter, or OTC.

That means that it is decentralized. And doesn’t take place via exchanges. Instead, forex trades are covered electronically by a global network of banks and are available 24 hours.

So, Forex, foreign exchange, FX or currency trading, is a global market. There you can trade the world’s currencies. This market is the largest, most liquid market in the world. With an average daily trading volume exceeding $5 trillion.

HOW TO USE

The aim of forex trading is simple. Just like any other form of speculation, you want to buy a currency at one price and sell it at a higher price in order to make a profit.

Some confusion can arise as the price of one currency is always, of course, determined in another currency.

For instance, the price of one British pound could be measured as, say, 3 US dollars, if the exchange rate between GBP and USD is 3 exactly.

In forex trading terms this value for the British pound would be represented as a price of 3.0000 for the forex pair GBP/USD.

Currencies are cluster into pairs to show the exchange rate between the two currencies. In other words, the price of the first currency in the second currency.

Some commonly traded forex pairs (known as ‘major’ pairs) are EUR/USD, USD/JPY and EUR/GBP. But it is also possible to trade many minor currencies. Also, they have the name, ‘exotics’. Like the Mexican peso (MXN), the Polish zloty (PLN) or the Norwegian krone (NOK). As these currencies are not so frequently traded the market is less liquid and so the trading spread may be wider.

More about types of Forex trading you can find HERE