Skip to main content

WHAT IS FOREX AND HOW DOES IT WORK?

Forex is the conversion of one currency into another.It's also reffered to as foreign exchange or Fx.

Come to my page!

What is forex trading? 
Forex trading is the means through which one currency is exchanged into another. When trading forex, you're always trading a currency pair i.e selling one currency while at the same time buying another. 
Each currency in the price is always listed as a three-letter code with two letters representing the region and one standing for the currency itself. For instance, USD stands for the US dollar and JPY stands for the Japanese Yen.
In the USD/JPY, you're buying the US dollar by selling the Japanese Yen. The euro vs US dollar (EUR/USD), the British pound against the euro (GBP/EUR) and the the British pound versus the US dollar (GBP/USD) are the most traded Fx pairs. For simplicity, most of these pairs are split into categories. 



  • Major pairs - most frequently traded which include EUR/USD, USD/JPY, GBP/USD and USD/CHF
  • Minor pairs-less frequently traded featuring the major currencies against each other instead of the US dollar.They include EUR/GBP, EUR/CHF, GBP/JPY
  • Exotics - a major currency against one from a small or emerging economy. They include USD/PLN, GBP/MXN, EUR/CZK.
  • Regional pairs - pairs classified by region such as Scandinavian or Australasia. They include EUR/NOK, AUD/NZD, AUD/SGD

How does forex trading work?


Forex trading is unique to the the stock market in that there are no centralized exchanges, the institutional forex market is run by a global network of banks and other organizations. The forex trading market is open for 24 hours for 5 days. It is closed on Saturday and Sunday. Because of the 24 hour cycle, a trader can buy and sell currencies at any given point of time. Transactions are spread across four major forex trading centres in different time time zones, London, New York, Sydney and Tokyo.

Forex pricing - base and quote 
The first currency listed in a forex pair is called the base while the second currency is called the quote currency. 
The price of a forex pair is how much one unit of the base currency is worth in the quote currency. 


In the above example, GBP is the base currency and USD is the quote currency. If GBP/USD is trading at 1.45241 then one pound is worth 1.45241 dollars.
If the pound rises against the dollar then a single pound will be worth more dollars and the pairs price will increase. If it drops, the pairs price will decrease. So if you think that the base currency is going to strengthen or rise against the quote currency you can buy the pair. If you think it will weaken, you can sell the pair.


What is leverage in forex trading?

When trading with leverage you get increased exposure to financial market without having to invest much capital. You don't need to pay the full value of your trade upfront. Instead you put down a small deposit known as margin. Your profit or loss is based on the full size of the leverage. Leverage therefore comes with the ability to make you greater profits all the same you risk losing much that can even exceed your initial deposit.


What is margin in forex trading?
Margin simply refers to the initial deposit you put up to open and maintain a leveraged position. 
The margin requirements changes depending on the broker and the size of the trade. It is usually expressed as a percentage of the full position. So a trade on EUR/USD for example might only require a deposit of 3% of the total value of the position for it to be opened. This means that while you are still risking $10000 you'd only need to deposit $300 to get the full exposure.


What is pip in forex trading?

Pips are units used to measure movements in a forex pair.It usually refers to a movement in the fourth decimal place of a currency pair. So if EUR/USD moves from 1.45241 to 1.45251 then it has moved a single pip. However there is an exception to this in the case where the quote currency is listed in much smaller denomination. In such  circumstances , a movement in the second decimal place makes up a single pip.So if EUR/JPY moves from ¥172.374 to ¥172.384 it has moved a single pip.

What is the spread in forex trading?
The spread in  forex trading is the difference between the buy and sell prices granted for a forex pair. If for instance, the buy price on EUR/USD was 1.4576 and the sell price was 1.4571 then the spread is 5 pips.


What is a lot in forex trading? 

Lot represents the size of your trades in forex. In simple terms, it's the number of currency units you will trade in forex. There are four main types of lots.
  • Standard lot
  • Mini lot
  • Micro lot
  • Nano lot




What moves the forex market?

Forex is primarily driven by the forces of supply and demand just like other financial markets. For successful forex trading one has to make trading decisions based on some types of analysis with the most preferred methods being technical or fundamental analysis.

The general logic behind fundamental analysis is that the strength of a country's economy at present and future has the potential to strengthen that country's currency. 
Technical analysis involves studying the price movement over time. 

Comments

  1. good and informative information

    ReplyDelete
    Replies
    1. This comment has been removed by the author.

      Delete
    2. Thank you for the positive comment. Be sure to subscribe to get future updates.

      Delete
    3. thank you was nc to read worthy

      Delete

Post a Comment

Popular posts from this blog

HOW TO REGISTER A DOMAIN NAME

Domain name  is the address where internet users can access your website. Your domain name is unique to you and once you register it no one else can register the same one so long as you continue renewing it.

Registering a domain name involves registering the name you want with an organization called Internet Corporation for Assigned Names and Numbers (ICANN) through a domain name registrar. For instance, if you choose a name like "myself.com" you should go to a registrar and check whether the name is still available for purchase. If it's available you'll pay a registration fee that costs around 10 USD per year. If it's unavailable you can change or choose an alternative to it like "myself.net" That will give you the right to the domain for a year. You should renew it annually for the same amount. You can set it to be auto renewed under your registrar dashboard.
Below are some of the domain registrars where you can register your domain;
1. Hover


2.Bluehost

10 BUSINESS IDEAS THAT REQUIRE LITTLE TO NO START-UP CAPITAL

Starting a business of your own can be sometimes challenging if at all you lack the start-up capital. However this should not be a hindrance to your financial breakthrough since there are lots of business that you can start with completely zero or minimal capital,all you need is an idea.Your skills and creativity are the foundation of your business.Here are some of the business with low start-up costs; Affiliate marketing.Affiliate marketing  simply entails earning commissions by promoting other companies' products and services.However it is only easy if you have a website or blog though you can also make use of social media platforms like Facebook and Twitter. There are several sites that offer this program you just have to choose your niche and concentrate on it.Sign up for an affiliate program here