Forex
or Foreign Currency Market involves trading one currency for another. For
instance, you can exchange US Dollars for the Japanese Yen. Foreign currency
transactions take place on foreign exchange or forex market.
Forex
market is the biggest, highly liquid trading market worldwide with trillions of
dollars getting exchanged by traders. It is not centralized and runs on an electronic
network of financial institutions, brokers, and retail traders.
Know all about
Forex
The
market regulates the value of the currency, also called an exchange rate. Forex
can be as simple as swapping one currency for another at any financial institute.
Trading
currencies are always listed in pairs such as EUR/JPY, AUD/CAD, and USD/INR.
They showcase the Euro versus the Japanese Yen or the Australian Dollar versus
the Canadian Dollar or the United States Dollar versus the Indian Rupee.
So,
if the USD/CAD pair price is 1.3055, it means you have to use 1.3055 to
purchase one USD. And, if the price rises to 1.4400, then it means it costs
1.4400 CAD to purchase one USD. It means that the value of USD has increased
because now it costs more CAD to buy it.
When
trading in forex, you have to trade in lots, such as micro, mini and standard
lots. While a mini lot is 1000 value of a particular currency, a mini lot is
100 and a standard lot is 100,000.
The
forex market is different for many reasons, majorly because of its great volume.
And, the biggest trading centers are London, New York, Hong Kong, Tokyo, and
Singapore.
Trading in Forex
Market
The
foreign currency market is open round the clock for five days a week. It means
you can purchase and sell currencies at any time. And, there are different
avenues a trader can use to execute trades. You can trade currencies with just
a mouse click, without any issue. Most investment companies give retail traders
a chance to open accounts and trade currencies.
When
you trade in forex market, you purchase and sell currencies of specific
nations, but there isn’t any physical money exchange.
A
trade opens a position in a particular currency, hoping that it will make some
upward movement and gain strength in the opposite currency that they have
purchased (or weak if they want to sell) to earn profit.
·
Long
and short
A
forex trader can trade both ways. You can earn profit regardless of whether the
market is going up or down. So, if a movement is triggered, forex traders don’t
care if a currency is rising or falling, and they can make a profit by going
long or short.
·
Leverage
Leverage
allows a trader to take a position bigger than their original investment. It is
a major reason why traders choose forex for trading. For instance, in equity
trading, you get maximum leverage of 1:2 however, in forex trading, you can get
leverage up to 1:100.
More
leverage means you can earn significant profits with small investment even from
a small movement in the market.
How does forex
market differ from other trading markets?
There
are some fundamental differences between foreign currency exchange and other
markets. You don’t have short hours, centralized bodies to look after the forex
market which means investors are not bound by rigid regulations as in stocks,
futures, and equity trading. Also, there are heavy fees or commissions involved
as in traditional exchanges. You don’t have a cutoff time, apart from weekend
holidays; you can work any time of the day. Lastly, its high liquidity makes
access to trading easier.
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