Forex trading is buying or selling currencies of different countries against each other. Forex stands for Foreign Exchange (FX). For instance the European currency is known as EUR and the United States currency is known as USD. So when you trade in a Forex market that means you are either buying EUR/USD, or selling EUR/USD simultaneously.
What is a FX market?
The FX market is a big, developing and liquid monetary market that functions all the 24 hours in a day. Do not misunderstand FX market to be a market in the customary sense for the reason that you will not find any central trading site or even an exchange. The majority of the Forex trading is carried on via telephone or through the webs.
How Does Forex Trading Work?
Forex trading is normally done by a broker or else a market maker. As a trader in Forex it is left to you to select a currency pair. Picking the currency pair should depend on the anticipation of change in their values so that you can place a trade and make profits. For instance, if you had bought say 1,000 Euros in 2011 January, and then the cost would have been approximately $1,500 USD. Right through 2011 the Euro’s worth vs. the U.S. Dollar’s worth enhanced. At the year end 1,000 Euros was worth $1,800 U.S. Dollars. And under such a situation if you had opted to finish your trade, you would have made a profit of $300.
Through whom can Forex trading be conducted?
Forex trading can be conducted via a broker or market maker. Orders can be given with simply a few clicks of your mouse and the agent then communicates your order to a partner in the Interbank Market so as to fill your place. When you put up the shutters on your trade, the broker ends your place on the Interbank Market and credits your account with the profit or loss. Literally all this takes only a few seconds. Wonderful is it not?
Basic Terms in Forex Trading
Here are some of the basic terms in Forex trading which you should know:
Cross currencies – Currency pairs without the inclusion of USD are called cross currencies. But the base currency is always identical.
Bids and asks: BID is the selling price of the base currency, ASK is the purchasing price of a currency.