What's FX Trading?

Trading, Forex, or FX, as it is popularly known, is the exchange of one currency for another on the OTC Market, sometimes referred to as the Over the Counter Market, at a predetermined exchange rate.

The FX Market has a daily trade value of 7.2 trillion, making it the most traded financial market. This is much bigger than the New York Stock Exchange's daily trade value of $55 billion, making Forex much larger.

Forex trading is basically trading one country's money for another to try and make money by guessing what will happen. How much a country's money is worth can go up or down because of things like how the economy is doing and world events. People trade currencies to make money from these changes, trying to guess which way a currency will go based on what affects the market. If traders guess right and the market moves that way, then they can make money from their trading guesses.

In Forex, there is no centralized exchange, and traders engage with the forex market through online brokers. These Forex brokers link traders to the market, allowing them to trade the constantly fluctuating currency prices at their convenience.

What makes Forex Prices Move?

Forex prices are constantly moving and this is due to the following factors:

1.Geopolitical factors

2.Economic Stability of a country

3.Monetary Policy of a country

The currency market prices are constantly changing due to these factors. The forex market is really enticing to traders because there is always a market movement that forex traders may trade at any given moment.

Many traders work the currency market. High liquidity there means prices shift fast. Any change in key factors sparks quick moves.

About The 24 Hour Trade Market

The Market is open 24 hrs a day and this means that traders can take trades whenever they want. The fact that the currency market is open 24 hrs a day from Monday to Friday makes it very popular among traders. The Market Day start with the Tokyo Session then moves to the London session and then to the New York Session. The most active trading session is the London and New York sessions.

What's FX Leverage?

Forex trading uses leverage. Traders deposit just a small part of the full trade amount. This lets them trade with borrowed money. Profits can grow much larger than the deposit. But losses can also rise. Traders must grasp leverage and follow money rules in forex.

What is Exchange Rate?

The exchange rate shows how much one currency costs in terms of another. In forex, pairs list one currency against another. Each pair includes two currencies: the base and the quote. The base sits on the left side. The quote appears on the right. Take EURUSD, a top pair. Here, EUR acts as the base. USD serves as the quote.

The currency prices are always moving up or down.

1. Should the EURUSD price ascend, this signals that the base currency (EUR) is strengthening while the quoted currency (USD) is weakening.

2.If the EURUSD price goes down, it means the first currency (EUR) is losing value and the second currency (USD) is gaining value.

Traders should buy EURUSD if they think the EUR will gain value compared to the US Dollar, which is the quote currency.

Traders should sell EURUSD if they think the EUR base money will lose value against the US Dollar quote money.

What is a Pip?

In Forex the minimum price movement of a currency pair is known as a Pip. Pip stands for Price Interest Point and is the point that is used to calculate profit and loss. Pip is the 4^th decimal point in a currency quote. E.g. if EUR/USD is quoted as 1.2500, the last decimal point is known as the pip. If the currency quote moves to 1.2501 then toe 0.0001 point movement is known as Pip. If price moved up to 1.2510 then that would be a 10 pip movement in the exchange rate.

What is Spread?

The spread is defined as the difference between the Bid price and the Ask price. For instance, if the Bid/Ask price for EURUSD is 1.2500/1.2502, it indicates a spread of 2 pips.

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