What is Forex?
Fundamentally, Forex market (also known as Forex) is where the speculation and exchange of currencies take place by the Financial Institutions, Governments, Traders, and Investors.
With an average daily turnover of $3.98 trillion, the Forex market is regarded as the World’s biggest market.
Buying of one currency and selling of another concurrently is called FOREX. This can also be referred to as Trading. The term Forex trading is common among the retail traders which refer to the buying and selling of currency simultaneously. For example, if based on speculation, you think the pounds is going to rise against the U.S dollar, you can buy the GbpUsd currency pair and then have it sold at a higher price to make a profit.
The foreign exchange market play a significant role in the proper development of economic agents in their international transactions and in general, for the whole economy. In this sense, we can say that its primary function is to be a mechanism through which you can acquire purchasing power in a foreign currency.
Benefits of Trading the Forex Market
- There is dense liquidity due to it being the largest market in the world with daily volumes exceeding $3 trillion per day. This makes it easy to get in and out of positions.
- Easy Accessibility: Trading account can be funded with little as $200 at many brokers and commence trading the same day in most cases.
- One thing I love most in Forex trading is how you can focus on just few currency pairs and still make huge returns. This is better than stocks where you might get lost analyzing thousands of market.
- Freedom: This is huge, at least for me. I love traveling, and Forex Market happens to give me that freedom to trade anywhere in the world. You only need your Laptop and internet connection to achieve this.
- All traders have an equal opportunity to profit in rising or falling market.
Basic Forex Terms
- Exchange Rate: The value of one currency expressed regarding another is called Exchange rate. g., if EUR/USD is 1.5400, it means 1 Euro is worth $1.5400
- Pip: Pip is the smallest increment of price movement a currency can make. It’s also referred to as point. E.g., 1 pip for the EUR/USD = 0.0001
- Leverage: Leverage is the use of margins (credits) to trade currency pairs in the market. Leverage leads to massive losses and should be used
- Margin: The deposit needed to maintain a position in trading is called Margin. There are two types; The Used Margin and The Free Margin. The amount used to maintain an open position is the Used Margin while the amount available to open new position is the Free Margin
Other terms: Spread, Bid and Ask Price, Bid/Ask Spread,
The Major Forex Pairs
- EUR/USD called “”
- GBP/USD called “Cable” or “”
- USD/CHF called “”
- USD/CAD called “Dollar Canada” (CAD referred to as the “Loonie.”)
- AUD/USD called “Aussie Dollar.”
- NZD/USD called “Kiwi.”
EUR stands for Euro
USD stands for US Dollar
CHF stands for Swiss Franc
CAD for the Canadian Dollar
AUD for the Australian Dollar
NZD for the New Zealand Dollar
Technical Analysis and Fundamental Analysis
In trading and Financial Investing, Technical and Fundamental analysis are the two main school of thought.
Technical analysis is about predicting future price direction by looking at the price movement of a market while Fundamental Analysis is predicting price direction by looking at the economic news.
This is a necessary article that gives you a quick knowledge about what forex is and the standard terms & practice associated with it. For more in-depth knowledge about most of the Forex Basics Terms, Analysis and practice, e.t.c, be sure to check my blog regularly.