Imagine a trading area which give you the opportunity to trade 24/5 in currency market. That is Forex. It is highly liquid so sophisticated traders can profit from this very active global market.
It is a spot market platform for traders. But it should not be confused with stock exchange market since Forex does not have a physical location in which all currencies trade.
One of the most important concept that should be understood in Forex that it is a two-way trading system. The meaning of this, you can buy and sell a currency at the same time. For example, you make a trade between Euro and US dollar (EURUSD) and that means “I believe that Euro becomes more valuable than Dollar” So when Euro’s value of currency gets higher, you sell your Euros and can take a profit from it.
On the other scenario, you believe that Euro become more valuable and you buy some but it become less valuable suddenly. It is normally a loss. But in Forex, when you see that Euro is getting less valuable in front of dollar, you can immediately sell it and buy dollar so you can upwind your loss.
eurusd
gbpusd
usdjpy
usdchfSome important points to know before starting:
Make trade with less capital. Leverage helps you to control a large volumed invesment with less money. But you should be aware of it may also lead to a bigger loss.
From 00.00 at Monday until 00.00 at Friday you can make trade in Forex.
Forex is a very active trading platform in which you can perform with highly amount of trading. But some of exotic pairs can create liquidity concerns.
Currency pairs in Forex can be traded with 10.000 units of increase. Moreover commision is not requested. Forex market reflects its cost over the spread of buy/sell.
You have to open a standard account in order to start trading Forex at W2Forex. It can be either an individual or joint account. Also, you need to apply and be approved for the privileges of margin and options in your account.
There are more than 170 currencies worldwide. All of them are known with a three letter code that resembles its stock ticker symbol. The US Dollar (USD) takes place most of the majority of forex trading so knowing its symbol makes easier to understand the system. Secondary major is Euro.
Other major currencies are (respectively its popularity): Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), Swiss Franc (CHF), and New Zealand Dollar (NZD).
Combination of two currencies that are exchanged, creates all the Forex trading. The currency pairs below, which are known as majors, constitute 75% of the trade in Forex market.
EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF, NZD/USD
Each currency pair is a form to represent the current exchange rate between these currencies. An example for the interpretation how to use this information with the help of EURUSD rate:
The exchange rate between currencies shows how much unit of money is needed to buy 1 unit of other money currency. Hereby, the base currency is represented as 1 unit and the other changes according to the currency.
If EURUSD exchange rate is currently 1.2, that means buying 1 euro costs 1.2 dollars.
When the exchange rate between EURUSD increases, it shows that Euro becomes more valuable than Dollar, which means buying 1 Euro costs more Dollars or vice versa.
A note: There is a historical tradition to express some currency pairs, but mostly there are expressed with the base currency versus secondary currency. e.g. while transforming USD to EUR, transformation called EURUSD not USDEUR.
Likewise, all the markets, the supply and the demand determine the foreign exchange prices. Another macro forces are into these determinations as well. Interest rates, policies of central bank, growth rates can affect the demand for the certain currencies.
The Forex market is open 24 hours a day and 5 days of the week and this gives the traders the opportunity to react faster to the speculations and the risks that may occur like in the stock Exchange market. Hedging is the main focus of currency trading so it is important to follow the Dynamics which can cause increases in currencies.