The foreign exchange market is the largest and most liquid financial market in the world. Forex trading takes place in the international foreign exchange market, where you can buy or sell one currency in exchange for another. The core of profit (or loss) in foreign exchange trading is the exchange rate between the two currencies.
One feature of international Forex trading is that there are no centralized exchanges. Forex trading is done through a computer network between global traders and Forex brokers. People interested in foreign exchange trading can participate in trading every day. Because of the sheer volume of transactions, currency quotes often change – sometimes in just a few seconds.
Basic situation of currency trading
Currency is always traded in pairs. If you use the Australian Dollar against the Euro, it involves trading of two currencies, and you can see the price of one currency relative to another currency. The market price is attached to each pair of currencies. This refers to the amount of the second currency (also known as the base currency) that is required to purchase the first currency (also known as the quote currency) of a unit.
For example, if you are a trader and see a quote similar to GBP USD 1.77351, you will know that it costs $1.77351 to buy a Pound.
Why become a Forex trader?
There are many reasons to choose to try Forex trading. Some of them are listed below.
- You get a huge amount of money compared to your initial investment amount.
- You don’t need a lot of money to invest. In fact, you can get started with just $1.
- You can gain a wealth of knowledge and financial experience.
- This is your own personal career, you only rely on yourself.
- You have the freedom to control your time as you wish.
How much money can I make in foreign exchange trading?
How much does Forex trading really make you earn? There are many websites that claim to double or triple their earnings each month. However, in practice, professional traders have a return rate of 20-80%, so a 20-30% return is a realistic and reasonable expectation.
Is foreign exchange risky?
Any transaction is risky, it is important to keep this in mind, but Forex trading can also be profitable, which is why many people conduct foreign exchange transactions. If you are a newcomer to Forex, we recommend that you first use the demo account to practice. After you are ready to use a live account, you should always consider the risks associated with the transaction.
What is a position?
The position is the size of the transaction currently in progress. In the transaction, there are long positions and short positions:
Long position: A trader buys a currency and expects the currency to rise. After the currency is sold, the long position is closed.
Short position: A trader sells a currency that is expected to fall. After the currency is bought back, the short position is closed.
What is the most active currency pair in foreign exchange trading?
In theory you can trade almost any currency pair, some of which are most active in trading. These are called major currency pairs – they constitute 80% of the total volume of the foreign exchange market.
These major currency pairs are associated with stable economies and therefore have lower volatility and higher liquidity. The major currency pairs include the aforementioned EUR/USD, as well as USD/JPY (USD and JPY), GBP/USD (GBP and USD) and USD/CHF (USD and CHF). Another feature of major currency pairs is that they are less risky to manipulate and the spreads are usually smaller.
What is a cross currency pair?
Cross-currency pairs refer to currency pairs that do not contain US dollars – they are more volatile and less liquid than the major currency pairs. The major currency pairs all contain the US dollar, while the cross currency pairs involve the Euro, the Pound, and so on. Common cross currency pairs include EUR/GBP, GBP/JPY and EUR/JPY.
What is a rare currency pair?
Rare currency pairs – currencies from smaller and emerging market countries. They usually form a currency pair with the main currency. Since they have the lowest liquidity and the highest volatility among the three types of currency pairs, they have the highest trading risk.
Includes USD/Mexican pesos, GBP/NOR and Swiss Franc/Norwegian Krone.