Trade Forex Trading

About Forex - What is Forex?

Forex is the commonly used abbreviation for Forex Trading. This abbreviation is commonly and often used by investors and traders to describe trading activity in the market that is carried out by investors/traders & speculators.

In Forex, people trade one country's money for another, hoping the money they buy will increase in value compared to the money they sell. If someone trades EURUSD, expecting EUR to become more valuable than USD, they can buy EUR. Later, if EUR's value rises, they can end the trade and earn money from it.

In forex, a trader buys or sells a currency pair. They buy if they expect the currency's value to rise soon. This works like buying a stock when you think its price will climb. They sell if they predict the value will drop. Just as a stock trader sells at $20 to avoid a fall to $15 and lock in gains. The stock seller at $20 ends up with more money than one who waits. For the same reason, a forex trader sells a currency when they see its value heading down.

This Market is a worldwide place where money is traded, and it's not run by one central place: instead, it happens through a system of big banks from different countries, which is usually called the interbank network. This interbank is made up of banks that are in various places around the world. This interbank network is in charge of giving the prices for exchanging money at any given moment to those who trade and other people in the market who want to buy or sell different countries' money. When trading Forex, the price of exchanging two different monies is always changing, and this price is shown as what's known as a Forex Quote. Money from different countries is traded in pairs of two, and the price for exchanging them is shown as a Forex Quote. This money quote is always changing, and the interbank network will automatically update the current price, and traders can then trade these monies at the current exchange price.

Take the EURUSD pair, the top choice in Forex. It might quote at 1.3450 in the morning. By afternoon, it could shift to 1.3500. That's the latest rate from the interbank system. The pair gained 50 points. EUR strengthened against USD by those 50 points. A trader who bought early can close the deal. They pocket profit from the EUR rise.

Forex Quotes

Because Forex currencies are traded and transacted in pairs of two, the currency pairs exchange rate is displayed using Forex Quotes. In the example above of the forex currency pair EURO being traded against the US Dollar the exchange rate is 1.3450. The currency EURO is denoted using the symbol EUR while US Dollar is denoted using the symbol USD, the forex currency pair is then denoted as the EURUSD, and the current exchange rate is quoted as 1.3450. This is the rate at which any trader wanting to trade this currency pair will trade and exchange the two currencies being traded.

The constant fluctuation in any currency pair's exchange rate affords speculators and traders the opportunity to profit by capitalizing on these movements. Shifts in currency pair exchange rates are driven by the principles of supply and demand. Due to the high volume of participants active in the open currency exchange market, quotations are ultimately determined by prevailing market forces. These forces can stem from elements such as an upswing in demand for a currency due to positive economic indicators in its originating country, leading to an appreciation in its value, or conversely, a reduction in demand stemming from poor economic performance, resulting in currency depreciation.

Pips

In forex, exchange rates shift in small units called pips. Traders use pips to figure profits or losses. Say a trade moves 50 pips your way. Your gain is 50 pips. For EURUSD going from 1.3450 to 1.3500, that is a 50-pip rise. The pair climbed 50 pips.

Lots

Currencies trade in units called lots. A standard lot holds 100,000 units of currency. Mini lots have 10,000 units. Micro lots contain 1,000 units.

Regarding profit calculation per pip in US Dollars, for one standard lot/contract it equates to $10: for a mini lot/contract, it's $1 per pip: and for a micro lot/contract, it amounts to $0.10 per pip. Consequently, in the preceding scenario where the forex currency pair experienced a 50-pip rise, if a forex trader utilized a single standard lot/contract, their profit would total $10 per pip multiplied by 50 pips, resulting in $500.

Leverage

Because not a lot of the retail traders can afford to trade 100,000 units of currency or 10,000 currency units, there leverage in Forex which means that forex traders can borrow money and use the borrowed money to make trades with. For example leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 leverage ratio & henceforth after borrowing using this leverage the investor and trader will control a total of $10,000 multiplied by 100, which means a trader will have a sum total amount of $1,000,000 and they can hence trade 10 standard contracts of $100,000 dollars units of currency. This leverage is what makes FX accessible to the retail traders because the traders can begin with little amount of capital of their own and use leverage to borrow the rest of equity required for trading. Money that the trader deposits is referred to as the trader's margin and a fx trader can continue borrowing money using this leverage ratio as long as they have the required margin in their trading account. This is why the traders must have the required account balance in their trading account to open the trade transactions they want to, for example a trader using leverage 100:1 must have more than $1,000 in their trading account to be able to open and trade using standard lots.

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