Everything you need to know about Forex

When you are traveling across the world, you might think that exchanging currencies isn’t worth much. That’s not the case as some currencies are stronger than others. What you may not realize is that you can make a profit out of selling certain currencies. With the Forex Market (short for Foreign Exchange Market), you are given the opportunity to do so. So you might be wondering what happens in Forex, well don’t worry as we’ll explain what it is and how it works.

Largest Market in the World

Easily Accessible

This means that Forex doesn’t close at the end of the business day compared to the stock or bond markets. Forex has fewer rules and does not have a governing central body and no Clearinghouses. Additionally, there are no fees or commissions compared to other markets. You can buy as much currency based on the size of your trading account.

Rollover Rates

Institutions and investors use Forex to buy and sell currencies. They post orders of buying and selling certain currencies on the network at certain rates of exchange and interact with other parties. Additionally, they can use Forex for speculation purposes.

For example, the movement of a certain pair of currencies (the US Dollar versus the European Euro; USD/EUR). The markets will determine the value of a currency versus another currency and this can reflect the current and future health of that country’s economy. Two currencies are traded in pairs. You sell one currency in order to buy another currency hoping that will be sold at a higher price in the future. Profits are made based on differences in your transaction prices.

Mind you, the currency movement can be volatile. The short-term movement is based on technical trading which focuses on speed and direction. While the long term movement refers to the relative interest rates and economic growth of the pairs of currencies involved

Forex

Leverage

Example

“Pips” and “Lots”

The major currencies in the world include the US Dollar (USD), Canadian Dollar (CAD), Australian Dollar (AUD), New Zealand Dollar (NZD), British Pound (GBP), European Euro (EUR), Swiss Franc (CHF), and the Japanese Yen (JPY). These currencies represent some of the world’s largest economies and receive the most trading activity. The most traded currency is the US Dollar, it is often paired with the Japanese Yen, the European Euro, British Pound, or the Australian Dollar.

Conclusion

The Cons for Forex, however, is that exchange rates are constantly changing and can be extremely volatile. There is no central location for trading. Leverage can be a double-edged sword and trading losses can be extreme if the risk is not properly managed. Depending on what country you reside in, Forex is closed on holidays.

Forex is another market for people to trade in. The easy access to the market can help you speculate and plan what pairs of currencies you want to buy and sell. Being open to anyone at any time can be encouraging for all. But be careful, the constant fluctuations in currency pairs may cause large losses so be mindful of your risk parameters.

Expert Tip:

References:

BabyPips.com. (2018, July 04). What is Forex? Retrieved November 06, 2020, from https://www.babypips.com/learn/forex/what-is-forex

Chen, J. (2020, August 28). Foreign Exchange (Forex) Definition. Retrieved November 06, 2020, from https://www.investopedia.com/terms/f/foreign-exchange.asp

DailyFX. (n.d.). EUR/USD. Retrieved November 10, 2020, from https://www.dailyfx.com/eur-usd

Hargrave, M. (2020, August 28). How the Rollover Rate (Forex) Works. Retrieved November 11, 2020, from https://www.investopedia.com/terms/r/rollover-rate.asp

Mitchell, C. (2020, November 05). Forex (FX) Definition and Uses. Retrieved November 06, 2020, from https://www.investopedia.com/terms/f/forex.asp

Momoh, O. (2020, August 28). How Leverage Works in the Forex Market. Retrieved November 11, 2020, from https://www.investopedia.com/ask/answers/06/forexleverage.asp

--

--

An A.I. Trading and investments assistant application aims to empower individuals to be in charge of their trades and investment portfolio in a hands-on fashion

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Zivolve

An A.I. Trading and investments assistant application aims to empower individuals to be in charge of their trades and investment portfolio in a hands-on fashion