WHAT IS FOREIGN EXCHANGE?

Foreign exchange, more commonly known as Forex or FX, relates to buying and selling currencies with the purpose of making profit off the changes in their value. As the biggest market in the world by far, larger than the stock market or any other, there is high liquidity in the forex market. Therefore, the forex market attracts many traders, beginners and experienced alike.

WHAT IS FOREX MARKET?

With approximately $4 trillion USD traded in the market every day, the forex market has the highest liquidity in the world. Basically, this means that one can buy almost any currency he wishes in high volumes while the market is open. The forex market is open 24 hours, 5 days a week – Monday to Friday. Trading begins with the opening of the market in Australia, Asia, Europe to follow and then the USA until the markets close.

Forex Trading Basic Terms

The most popular pair traded is the Euro vs. the American Dollar, or EURUSD. The currency on the left is called the base currency, and is the one we wish to buy or sell; the one on the right is the secondary currency, and is the one we use to make the transaction. Each pair has two prices – the price for selling the base currency (ask) and a price for buying it (bid). The difference between them is called a spread, and represents the amount brokers charge to open the position. The more a currency is traded, i.e. high liquidity, its spreads will be narrower. The rarer the pair is, the wider the spreads will be, since lower liquidity usually entails increased volatility. The increased risk – consequently – entails a wider spread.

Usually a quote will be presented with four numbers after the dot, for instance 1.2356. In the case of EURUSD it means for every Euro the trader wishes to buy he will have to invest 1.2356 US dollars. Any change in the currency value will usually be seen on the fourth figure after the dot, mainly known as a PIP The spreads, gains and losses will usually be presented in pips.

Some other terms of the online forex trading world are Going long and Going short, which stand respectively for ‘buying’ and ‘selling’. A trader who speculates the market will rise is called a ‘Bullish Trader’, while on the other side stands the ‘Bearish Trader’, who is more on the defensive side. In accordance, the terms ‘Bull Market’ and ‘Bear Market’ are used to describe the way the market goes.

A bull market is on the rise, and a bear market is usually decreasing. Experienced traders will decide their strategy depending on the market trends, and will make sure to follow all relevant events so they can precede the changes in the market and gain profit.

In the past, every trader called his broker and instructed him on actions to be made. Today the trades are done directly by the client on a software, called a trading platform. Many of the platforms are Forex Templateilable for computer, internet and mobile. Every trader has his own trading strategy, and he should find the platform that will enable him to perform it in the best way possible, i.e. that he will feel most comfortable in.