What is forex trading?
Forex Trading or FOREX is an abbreviation of the term foreign exchange market, which means the foreign exchange market and is also abbreviated as FX.
The field of forex is one of the most famous financial markets and it is a huge financial market in which currencies are traded between millions of investors, banks, and investment funds for several purposes.
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Forex Trading Explain the field of FOREX
The most important of which is to benefit from the change in currency exchange rates and to make a profit through buying and selling operations. Forex trading has flourished due to technological development and the spread of the Internet and modern means of communication.
The forex market is a decentralized market and has no geographical boundaries as it is traded using the OTC system or trading off the platform.
How did the forex market start?
The FOREX market started on the basis of the barter principle, where in the past people practiced trading by bartering goods with each other because there was no money or banknotes at that time.
The barter system was the basic building block of the currency trading system. Then people used what was valuable in their eyes of trade operations such as snails, precious stones, and others in commercial operations, so that the value of the commodity is determined through a certain number of these media, such as buying meat for four snails.
And soon these media were replaced by pieces of gold, silver and precious metals, and then people tended to use paper currencies as an alternative to gold and silver so that banknotes that express a certain amount of gold would be printed, and this was the beginning of the emergence of money that we know today.
What is the trading volume in the FOREX market?
The FX market is the largest financial market in the world in terms of liquidity and trading volume, reaching $6.6 trillion per day in April 2019, equivalent to 25 trillion Saudi riyals per day.
FOREX cannot be compared to any other financial market in terms of liquidity, for example, NYSE, the largest stock market in the world, has a daily turnover of $70 billion.
What is the trading volume in the forex market?
Who trades forex?
This huge liquidity in the currency market is due to the presence of different classes of traders such as major investment banks, central banks, investment funds, investment management companies, brokerage firms, individual traders and traders for non-financial purposes such as hedging purposes.
In addition to the development of means of communication and online trading, and the use of financial facilities or leverage for trading in forex, and this is what attracts more and more investors to the currency market day by day.
Advantages and Disadvantages of forex trading
- The most important features of the currency market
- Huge liquidity and high trading volume in forex
- Forex trading is open 24 hours 5 days a week
- Forex is traded in a decentralized manner - OTC
- Ease of following the forex market and determining currency news
- The possibility of taking profits during the rise or fall of currencies
- The possibility of trading with small amounts thanks to the leverage
- Ease of opening a real account in forex
Disadvantages of the currency market
- The degree of volatility and price activity
- High risk
- Weakness in the supervisory or regulatory side
What currencies are there in the forex market?
What currencies are traded in forex? As we explained earlier, forex is the foreign exchange market, so traders trade on the currencies of countries and the most famous of these currencies are the currencies of major countries.
Which has an economic weight, and attention is often paid to 8 currencies as they are considered the most important and highest traded currencies among the currencies of the world, namely:
- USD - The US dollar is the currency of the United States of America.
- EUR - the currency of the European Union.
- GBP - the currency of Britain.
- JPY - Japanese currency.
- Australian dollar AUD - Australian currency.
- New Zealand dollar NZD - the currency of New Zealand.
- Canadian dollar CAD - Canadian currency.
- Swiss franc CHF - Swiss currency.
Trading pairs in the forex market
The forex market is traded in the pairs system where all the two currencies are combined together in one pair to trade one currency against the other.
It means selling one currency in exchange for buying another at the same time, which means that a currency pair contains two currencies, a base currency and a counter currency, each of the currency pairs has an exchange rate, expressing what is required to be paid. The base currency for one unit of the counter currency. for example
What forex basics do you need to know before you start forex trading?
There are basics that you should know their meaning before trading forex, which are:
- Forex traded currency pairs
- Spread or difference in buying and selling price
- What is a pip or pip and how do you calculate profits and losses in forex?
- The method of buying and selling, the size of the deal and the contract in Forex
- What is Leverage and Margin in Forex?
What is a Margin Call or Stop Out?
- Margin
- Leverage
- Contract size/lot
- Trading platforms
- Contracts for Difference
- Swap
How do you get started in currency trading?
FX market currency trading is a huge market available to everyone, and you can easily start currency trading by opening an investment account with a forex company or a brokerage.
Brokerage companies provide facilities for individuals or what is called leverage or margin trading, which enables them to trade in large amounts compared to the deposited capital. In order for an individual to trade forex, he must:
- Learn the basics of forex trading and the most important forex trading terms.
- Learn how to use the forex platform forex trading
- Learn how to analyze currency and forex price movements.
- Learn capital management in forex.
- Create a plan for forex trading.
- Trade with a demo account before risking real money.
- Choose the best forex broker and open a real account.
- Find the best broker
Is currency trading profitable?
Currency trading is more flexible compared to stock trading in terms of risk management. A trader in the forex market can achieve very high returns whenever he decides to increase the risk further.
Since currencies are often traded using leverage and a margin system, which doubles the amount of money traded compared to its real value, this causes the risks of investing in the currency market.
So you should make sure you learn currency trading well before you start and only trade with redundant funds.
Forex Explained - What are Forex Rates?
What is a forex, it is essential to understand how currency pairs work before moving forward. For example, let's take the EUR/USD pair.
The euro is called the base currency (or transaction currency) and the US dollar is the counter currency. It gives us the balance of power between the base currency and the currency corresponding to the exchange rate.
When looking at EURUSD or other currency pairs on the red box trading platform, we can see two prices: buy and sell. It is usually displayed as EURUSD 1.1034 / 1.1035. The asking price indicates that we can buy 1 euro at 1.1035 dollars.
Forex Explained - What are Forex Rates?
Source: Admiral Markets MT4 - EURUSD Daily Chart - Accessed 11.11.2019 at 17:10 GMT
In parallel, the bid price indicates to us that we can sell 1 euro for 1.1034 dollars. It's easy to see that banks usually sell higher coins than they get. They are able to do this because their influence is greater than that of intermediaries.
In the forex market, profits are made by increasing or decreasing the value of a currency in relation to another. Let's say you buy Euros and sell US Dollars (through the EUR/USD pair). To make a profit from this forex trade, you have to wait for the euro to rise against the US dollar.
What are the most popular forex pairs?
In order for this Forex explainer article to be completely complete, we need to review the most popular traded instruments or currencies that traders have access to.
The most commonly traded currencies are the Euro (EUR), US Dollar (USD), Japanese Yen (JPY), British Pound (GBP) and Swiss Franc (CHF).
Thus, the most popular currency pairs (also known as major pairs) are the most used. The most traded currencies are EUR/USD, GBP/USD, USD/JPY, and USD/CHF.
What are the most popular forex pairs?
There are three other very popular currencies in forex trading: the New Zealand dollar (NZD), the Australian dollar (AUD), and the Canadian dollar (CAD). When linked to other currencies in a pair, they are labeled as "crosses": NZDCAD, USDCAD or AUDUSD.
All currency pairs that include the Russian ruble, Czech koruna, Polish zloty, Hungarian forint, Swedish krona or Norwegian krone are considered "exotic" pairs. They represent only 10% of the currency exchange market.
Forex Explained - What are Forex Contracts for Difference?
If you've ever wondered what forex is, and have done research on forex trading education for beginners, you've probably seen the term forex CFD at some point.
There are two ways to trade forex: using contracts for difference (CFD) or spot forex (also known as margin). Spot forex trading involves buying and selling actual currency. For example.
You can buy a certain amount of sterling against the euro, and then, once the value of the pound increases, you can exchange the euro for the pound again, getting more money than you originally spent on the purchase.
The term CFD stands for Contract for Difference, a contract used to represent the movement in the prices of financial instruments.
In terms of forex, this means that instead of buying and selling large amounts of currency, you can profit from price movements without owning the asset itself.
Besides forex, CFDs are also available on stocks, indices, bonds, commodities, and cryptocurrencies. In any case, CFDs allow you to trade on the price movements of these instruments without having to purchase them.
Who trades in the forex market?
The most important traders and investors in the forex market are:
- Central banks
- Governments
- Private banks
- Hedge fund investors
- ETF investors
- Mediators
- Beginners, Professionals and Investors
Of all the traders in the forex market, central banks have the greatest influence on foreign exchange rates. In fact, their policies (quantitative easing) and decisions (interest rates) are regulated by the currency “supply” and they are responsible for this.
Novice traders and investors have only limited influence on the forex market, due to the amount invested compared to the total amounts out there in the trillions of dollars.
To understand the forex market, one must know that the supply and demand for currencies are constantly evolving. Traders can track price development through trading platforms using candles or charts.
What are the factors that affect forex?
The forex market, which reflects the prices of currency pairs, is influenced by several factors:
- Interest rates
- Inflation rates
- Political and economic news
- Natural disasters
- Gross domestic product
- Supply and demand for the underlying instrument
You can always see the latest news from the economic calendar which shows the most important news of the day and week and their impact on the relevant financial instrument.
Forex analysis
Forex analysis is not the only key to success when it comes to trading; It is, in a way, the ability to do a good analysis is essential in order to become profitable in the forex market.
There are two main ways to analyze the forex market: fundamental analysis and technical analysis.
Technical analysis is the latest method of analysis. It depends on two factors: time and price. Both are measurable. This is why many forex traders prefer technical analysis over fundamental analysis.
When you use to support and resistance, identify key areas or look at indicators or candles, you do not get information about the cause of the change in supply and demand.
Fundamental analysis is based on economic factors and their expectations, while technical analysis is based on what happened in the past in market cycles with the formation of statistics for them.
Understanding what forex is = the first step to success
The lack of infrastructure for what is forex and how forex works is the reason why many novice forex traders fail.
Some people present forex as a pseudoscientific currency that basically comes as a coin. Fun and prestigious game, with the possibility of high profits quickly.
It is clear that when people start trading without any understanding of trading structure in mind, they expect to get a fortune from a very small investment. Filled with hope, they jump in the market without any understanding of what they are doing. This usually leads to losses. This is neither good nor bad, the way the markets work. Every time you make a profit, someone else is losing.
How do you trade forex?
Forex trading is entirely based on logic. A trader buys or sells a currency pair if he expects the exchange rate to rise or fall.
For example, let's say the EUR/USD exchange rate is 1.1450. And your analysis makes you believe that the exchange rate will rise.
You open a buy position. The next day, the EURUSD exchange rate was 1.1470 and you closed the position with 20 pips. The profit can be $0.50 and can reach $50,000, depending on the size of the lots opened.
When we look in detail at how the forex market works, we realize that it is more than just placing orders on a chart.
Contracts for Difference (CFDs) are a type of derivative traded by many investors. It provides all the benefits and risks of a basic tool without owning it. It also allows investors to trade both in rising and falling markets (thanks to short selling orders).
After choosing a forex broker and trading account, traders need to install the trading platform and deposit.
Best platform for forex trading 2021
Demand from emerging markets requires additional investment in the FX platform sector, as fintech firms join the competition and disrupt the industry. Frontier markets provide an additional opportunity, as Internet access has become widely available.
With a clear focus on trading from mobile phones rather than laptops and computers. The next decade appears set for more innovation, and we've taken a look at the MT4 platform and its successor, MT5, as well as eleven well-established competitors.
The best trading platforms
- MetaTrader4
- MetaTrader5
- Ctrader
- NinjaTrader
- Signal
- ProRealTime
- Trading Station
- ZuluTrade
- FX Trader
- Plus500
- xStation
- LCG Trader
- JForex
Best Mobile Trading Platforms
- Plus500 Platform - This broker platform has been designed with mobile traders in mind and is among the easiest to use
- AvaTrade Platform - The AvaTradeGo platform is ideal for trading on the go.
- FXTM Platform - The reliable use of MT4 and MT5 on mobile platforms makes this broker a great choice.
Questions and answers about FOREX
What are the best forex trading platforms?
The best forex trading platform for most traders is MT4, followed by cTrader and ProRealTime.
What is the forex platform used by forex traders?
Most forex traders use the MT4 trading platform, which is offered by almost every forex broker, and it has become the cornerstone of the online forex trading industry.
Can I trade forex with $10?
While some brokers offer trading accounts starting at $10 or less, which is enough to make one small trade, it is not enough for forex trading.
Is forex trading useful?
Forex trading is worth it if new traders approach it with the same mindset that any other profession requires. The 85% failure rate confirms that most people do not take it seriously or have false and unrealistic expectations. Misleading marketing campaigns are partly to blame.
How do I choose the best trading platforms?
The most defining aspect of any forex trading platform remains the support of your trading strategies. It should contain advanced charting and analysis tools, both technical and fundamental, while the support of automated trading solutions is useful. New retail traders who don't know what they need should start using MT4, because it supports everything.
How do I choose a forex broker?
While the final choice boils down to individual preferences, traders should choose a broker that is regulated and compatible with a wide range of assets, a convenient cost structure for the trader and a sophisticated trading platform with a supportive technical infrastructure.
How do I know if my forex broker is regulated or not?
Each regulated broker provides details at the bottom of their homepage. Go to the regulator's website and check the license number against their database. Alternatively, they can confirm contact with the regulator or send an email to inquire about the regulatory status of the broker.
What is the difference between a dealing desk and an agency broker?
A trading room broker can directly intervene in the order flow and usually maintains an inventory of assets. Most of the deals placed on the dealing desk are done internally and never reach the market.
The trading desk usually serves the interest of the broker. The agency broker has an official responsibility to act in the best interests of the trader, does not hold shares, and only executes orders placed on the open market. Agency brokers charge high costs for their services and cater to discerning professional traders.
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