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What is Forex

by Darryl Beck

Foreign exchange, currency trading, FX or Forex is a decentralized world market for global currency trade. The volume of average trading daily in the Forex is a whopping $5 trillion, making it the largest most liquid market globally.

Check out some compelling opportunities for trading in the Forex that you won’t be able to find in other investments.

Forex is about the exchange

Forex trading or transaction is common to those that travel overseas. Travelling to another country would require you to convert your money to that of the country you are visiting – like euros to pounds. The amount you get in return for exchanging currency depends on the supply and demand, and the rate of exchange between both countries as there is constant fluctuation in the exchange rates.

Forex opportunities

Currency trading is pretty much similar to stocks where you base its value based on your perception and understanding. What makes forex different is that it is simple to both buy and sell due to its huge market. Locating sellers and buyers is easier compared to other markets.

One example is if you see that a country’s currency is devaluing, you can sell that currency against another with higher value. The more the currency devalues the more profit you are gaining while you are selling.

Trading in Forex: How to Buy and Sell

Forex always involves two currencies. An example is EUR/USD which is traded the most globally. The base is the first currency and the second is the counter. The prices that you see in your platform when trading is the price for buying and selling. The first price you see is the price of one EUR is worth in USD. When you either buy or sell, you are pertaining to the first currency in the pair, which is the EUR.

For example, you believe that the value of EUR will increase against the USD. If so, you will buy the EUR/USD. If you believe that the value of EUR will decrease, then you sell.

Trading on margin

When only hundredths of cents are quoted in prices of trading in forex, you need leverage to see a substantial return to your investment. Since the forex market has deep liquidity, you can seek liquidity providers like big banks to allow you to trade with leverage. But be careful as leverages can either increase your potential profit, or potential loss.