Explaining the Forex Trading for Beginners
Forex trading for beginners may be really difficult to get on, but it’s worth it. Read this article to start learning about the most lucrative financial market of our times!
What is the Forex Market?
The term “forex market” is the shorter version of the foreign exchange market. You can also say, fx market, or simply forex.
This market is where traders, banks, central banks, corporations, and speculators trade currencies and currency pairs.
The forex market is unique in that it’s the most liquid market in the world, with a trading volume that reaches trillions on average per day.
Currency Pairs for Forex Trading
Forex traders trade currencies in pairs, and these pairs can be majors, minors, or exotic. The major currencies are:
- Dollar (USD)
- Euro (EUR)
- British pound (GBP)
- Japanese yen (JYP)
- Swiss franc (CHF)
- Australian dollar (AUD)
- Canadian dollar (CAD)
- New Zealand dollar (NZD)
Any currency from this list paired with the US dollar is a major currency pair, like USDJPY, EURUSD, and GBPUSD. Meanwhile, pairs from this list that don’t have the USD are minor pairs, like EURGBP, AUDNZD, and EURCHF. The rest of the other currency pairs are exotic pairs.
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Essential Forex Trading Words
When you start forex trading, you will definitely encounter a lot of forex jargon. Here are some of the most important ones:
- Bid and ask prices – the bid price is the price at which you can buy the currency, while the asking price is the price at which you can sell it.
- Spread – the difference between a currency’s bid and ask price. Spread is often low for the most in-demand currency pairs.
- Margin – when you already have a trading account, the margin is the amount of your money in that account.
- Pip – the base unit of price for currency pairs, equivalent to 0.0001 of the quoted price.
Why Trade Forex?
Forex trading is popular for good reasons. There are tons of advantages you can enjoy when you become a forex trader.
Largest Financial Market
The forex market is the biggest financial market in the world. As we have mentioned, its sheer size ensures that it’s also the most liquid financial market in the world.
At the same time, the forex market is very volatile. This is good news for traders who want to gain quick profits from the movements of the pairs in the market.
The forex market is open 24 hours a day, 5 days a week. That means you can trade round the clock if you really want to.
Compare that to the stock exchanges, which trade only at certain times of the day. Since the forex market trades over the counter, without an exchange, traders don’t have to follow “business hours.”
Most forex brokers nowadays trade online, meaning they can cut overhead and save. At the same time, the competition among online forex brokers is very tight these days, thanks to the advent of new technologies.
What this means for traders is that they can benefit from the super low commissions and fees that brokers charge nowadays. There used to be a time when only the rich and wealthy could participate in the forex market. Those days are gone.
You can join the forex market easily today.