What is Forex Trading

Forex which is commonly known as FX, Forex or Forex Trading is the exchange of one currency for another at an agreed exchange rate on the OTC Market or Over The Counter Market.

Forex Market has a daily trade turnover of 7.2 trillion making it the most traded financial market in the world. Compare this volume with New York Stock Exchange daily traded volume of $55 billion. This makes Forex many times bigger than the New York Stock Exchange.

Basically Forex trading is the simultaneous exchange of one currency for another for the purpose of speculation for profit. The value of currency exchange rates will appreciate or depreciate due to a number of factors such as economic factors and geopolitical factors. The purpose of trading currencies by traders is to profit from these moves where traders try to predict the likely future direction of a particular currency based on these factors affecting currency market moves. If traders predict the correct direction and the market then moves in that direction then the traders stand to make a profit from their speculative trading.

In Forex there is no central market place and traders access the forex market through online forex brokers. The Forex brokers connect the traders to the forex market. Traders can then trade the price movements of currencies which are constantly changing at any time they want through their forex broker.

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

Because these factors are constantly changing the forex market prices also keep changing constantly. These market moves are what makes the forex market very exciting to traders as there is always a market move that forex traders can trade at any time.

The fact that there are also many traders trading the forex market and there is high liquidity in the forex market means that currency prices can move very quickly when there is any change in these factors that affect the currency price movements.

About The 24 Hour Forex Trading Market

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

What is Leverage

Forex trading is leveraged which means that a currency trader is only required to deposit a small percentage of the total transaction they will be trading. What this means is that a trader will be trading on borrowed capital and their potential for making a profit is greatly increased compared to the amount of capital that they deposit. This leverage also increases the potential of losses that a trader can make while trading using leverage. This is why traders should understand what is leverage and learn about Forex money management rules.

What is Exchange Rate

The price at which currencies are exchange at is known as the exchange rate. Forex is quoted in terms of one currency quoted versus another currency. This is known as a currency pair which has tow currencies, the base currency and the quote currency. The base currency is the currency on the left and the quote currency is the currency on the right. For example EURUSD, the most commonly traded currency pair, EUR is the base currency and USD is the quote currency.

The currency prices are always moving up or down.

1.If the price of EURUSD was to change and move up this would mean that the base currency (EUR) is appreciating and the quote currency (USD) is depreciating.

2.If the price of EURUSD was to change and move down this would mean that the base currency (EUR) is depreciating and the quote currency (USD) is appreciating.

Traders should buy EURUSD if they believe the base currency EUR is going to appreciate against the quote currency which is the US Dollar.

Traders should sell EURUSD if they believe the base currency EUR is going to depreciate against the quote currency which is the US Dollar.

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. For example if EURUSD 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

Spread is the difference between the Bid price and Ask Price. For example if the Bid/Ask price for EURUSD is 1.2500/1.2502, this means the difference between the two is 2 pips, these 2 pips is what is referred to as the spread.