The forex market is the market where currencies are exchanged and where the price of a currency is quoted. Forex traders will then try to take advantage of these price variations to make money in the stock market. In this article we will review the basics of forex and trading.
What is forex?
Forex is a portmanteau referring to Foreign Transactions, Which is the foreign exchange market, where currencies are traded and exchanged.
These exchanges in the forex market create variations in currency prices, which the forex trader tries to take advantage of to make money.
The forex market is a global market, second only to the interest rate market in terms of trading volume.
We have seen above that Forex is the market where currencies are quoted, but you should know that currencies are quoted in pairs. We express the value of one currency against another currency.
How to read a forex quote
When we see that EURUSD is at 1.1500, we should read 1 euro worth 1.15 dollars. Euro is the base currency, and USD is the counter currency. Thus the EURUSD pair gives a value of 1 euro expressed in dollars. Usually, quotes on trading platforms display 4 to 5 digits after the decimal point.
To trade currency pairs
We quickly realize that there are hundreds of currency pairs to trade in Forex, each currency being expressed in terms of other currencies: EURUSD, EURGBP, EURJPY… then USDJPY, USDCHF, USDCAD… and so on.
However, forex traders often choose to focus only on the “major” currencies: EURUSD, GBPUSD, USDJPY and USDCHF, and sometimes add AUDUSD, NZDUSD and USDCAD. This allows better monitoring of price changes, but also of news that affects prices.
What affects forex
Forex trading requires following the evolution of prices and current events, but also understanding how current events affect currencies.
To make a stock market analogy, we can consider that the country (or financial region) is the company, and the currency is the action. Any positive or negative news on a country will affect its currency, always under the principle of supply and demand.
Among the factors that most affect the value of a currency are interest rates, inflation, growth, employment, but also political events. Not to mention the central bank’s monetary policy.
This is why the economic calendar is an essential working tool for traders.
Why Choose Forex Market?
- The Forex market It is a market that is open 24 hours a day, 5 days a week Hence it offers the possibility to trade in longer time slots than other markets This is especially useful when an event is expected in the evening, but also for opening/closing a position at any time without waiting for the market to open the next day and suffering a price gap. This can save the trader in case of surprising news after the close of other markets.
- Also, Forex is the most liquid market in the world, which makes it easy to find counterparties to your positions. This allows faster execution of trading orders and avoids discrepancies between requested price and received price: slippage.
- Finally, brokerage fees in Forex are generally lower than in other markets.
What is trading?
What is trading? What is trading?
Explained trading. Trading is the buying and selling of financial assets to profit from price rises or falls.
Unlike a “classic” investor who buys a commodity and waits for its value to increase over time before reselling it, businessman This is usually more part of a more dynamic procedure, with operations that can last days, minutes or even seconds.
This is a potentially more profitable method, but it is also a risky one.
What is forex trading?
Forex trading therefore consists of buying and selling currency pairs on the forex, trying to predict which direction the pair will take in the next few days or minutes.
How to trade in Forex?
To trade forex you need to go to a broker (broker) and open an online account. Firstly, it is strongly recommended to start with a demo account to learn and practice virtual trading before investing your money.
Learning the basics of trading is an essential prerequisite to understanding Forex and hoping to make money.
Online training is usually offered by brokers.
What is the trading strategy?
In trading theories, two main currents collide: fundamental analysis and technical analysis.
- Fundamental analysis consists of the study and analysis of economic statistics to know the value of a company or the state of health of a country. From this we derive a “fundamental” or “actual” value of the share or currency, which can be compared to the observed price in the market.
- Technical analysis is the study of price charts, assuming that certain price patterns repeat themselves. The practice includes the statistical study of price developments. Indirectly, we also deal with the psychology of traders and mass behavior.
To summarize, fundamental analysis focuses on companies, countries or assets, while technical analysis focuses on prices.
A consensus emerged on the need to integrate the two practices rather than oppose them.
Forex trading can be risky, so try to learn everything about trading before betting your money.