Introduction
The foreign exchange market (FX) is the world’s largest and most liquid market. The daily trading volume of the forex market averages over $5.3 trillion USD per day and is typically traded on a 24-hour cycle between 5:00 pm EST Sunday and 4:00 pm EST Friday.
The FX market can be accessed by anyone with an internet connection and an online trading account, so long as they are authorized to trade in their region’s local currency.
What is the Forex trading market?
The Forex market is the largest, most liquid market in the world with an average daily trading volume of $5.1 trillion according to the Bank for International Settlements (BIS).
It’s an electronic network of banks, brokers, institutions and individual traders who buy and sell currency pairs based on each currency’s relative value to another currency that makes up a pair.
For example: You can buy U.S. dollars against British pounds and then later sell those same U.S. dollars against Japanese yen if you think exchange rates will move favorably in your favor after you purchase one currency against another—hopefully making money off of your investment by doing so!
How does Forex trading work?
Forex trading is a 24-hour market, which means that you can buy and sell currencies at any time during the day.
Forex traders don’t need to actually visit an exchange to conduct their trades because they use an intermediary broker who will provide them with a platform to trade on.
To get started with forex trading, open up an account with your chosen broker by providing personal information (such as name, address and contact details). You’ll also need to verify your identity before being allowed access to view markets and make transactions online.
What is a currency pair?
A currency pair is the price of one currency in terms of another.
For example, USD/JPY (United States Dollar versus Japanese Yen) is a currency pair with USD as the base currency and JPY as the quote currency, or second one.
The base currency is usually considered to be more stable because it has a central bank behind it, and thus there’s less risk when trading with this paired up against other currencies.
The quote currencies are often heavily influenced by political events and economic activity within their respective countries; this makes them more volatile than their counterparts.
The foreign exchange market is the largest, most liquid market in the world with an average daily trading volume exceeding $6.6 trillion.
This means that every day, more than $6.6 trillion changes hands via currency trading alone! No matter how large your bank account may be, you’re probably not going to be able to keep up with this kind of cash flow on your own—but that doesn’t mean you can’t take advantage of it.
The forex market has existed since ancient times when traders would exchange different currencies through barter agreements and later trade politely-worded letters between nations in order to get what they were looking for and/or pay off debts incurred by their governments or businesses’ misdeeds (don’t ask).
There is no centralized location, rather the forex market is an electronic network of banks, brokers, institutions, and individual traders (mostly trading through brokers or banks).
Most traders use a broker to trade in the forex market. Brokers provide the liquidity in this huge market by matching buyers and sellers together so that they can conduct trades.
Forex trading involves buying and selling currency pairs based on each currency’s relative value to the other currency that makes up the pair.
You can buy or sell a currency pair. A currency pair is made up of two different currencies, one that you are buying and one that you are selling.
For example, if you buy the EUR/USD currency pair, then your trade will be in Euros but your profits will be made in US Dollars.
The most popular currency pairs are based on a list of popular currencies that are paired with the USD (US Dollar). These include:
EUR/USD – Euro vs US Dollar
GBP/USD – British Pound vs US Dollar
JPY/CAD – Japanese Yen vs Canadian Dollar
Major currency pairs are based on a list of popular currencies that are paired with the USD.
You can trade currency pairs that are based on a list of popular currencies. The most commonly traded currency is the U.S. dollar (that’s why it’s paired with so many other currencies), but there are also quite a few other major currencies to choose from as well, including:
Euro/US Dollar
US Dollar/Japanese Yen
British Pound/U.S. Dollar
The most popular major currency pairs are EUR/USD, USD/JPY, GBP/USD and USD/CHF
The majors are the most frequently traded pairs in the FX market. This means they enjoy the highest liquidity and typically have the tightest spreads.
The majors are the most frequently traded pairs in the forex market. This means they enjoy the highest liquidity and typically have the tightest spreads. In fact, each of these pairs accounts for more than 10% of total volume traded every day.
The major currency pairs comprise about 95% of all trading activity on a global scale (USD/JPY being excluded).
A pip is a basic concept of foreign exchange (forex) trading. When foreign exchange quotes are made or when traders transact in forex, they buy and sell currencies by pips.
Pips are always quoted in pairs: the first currency listed is the base currency, while the second currency is called an alternative currency or countercurrency.
For example: USD/EUR 1.2500 = 1 US dollar buys EUR 0.000125 (1 US Dollar = 1 Euro; $1 = €0.00125)
You can calculate profit and loss for a specific trade using the following formula: (Closing Price – Opening Price) * No. of Shares = Profit/Loss Currency Pairs in Forex Trading
This is an easy calculation if you have access to a forex trading platform that provides charts with past data, but it’s also possible you have a spreadsheet or piece of paper handy that supports math functions such as subtraction and multiplication.
If your spreadsheet supports these functions, then you can use them directly in your calculations.
A short-term trader may look at charts ranging from five minutes https://baxiamarkets.com/ to thirty minutes to one hour; a day trader may use charts that look at one day to several days; a swing trader looks at several days to several weeks; and finally, a longer-term trend follower looks at several weeks to months or even years.
In the forex market, you can trade any time of day, but most traders do their trading during regular business hours.
The main markets are London and New York, which means that most of your trades will be made in those two places.
But essentially, you can trade whenever it is convenient for you.
Why do we need to use references in the Forex markets?
We use references to describe the currency pairs and distinguish them from each other.
For example, the EUR/USD, EUR/GBP and USD/JPY are all different currency pairs, but they all have the same base currency (the Euro).
The reference helps us to identify which base currency is being used in each pair. By using references we can see that:
EUR/USD and EUR/GBP are both quoted in dollars per Euro; and
USD/JPY is quoted in Yen per dollar.
What is a pip or point, and how much is it worth?
A pip is a basic concept of foreign exchange (forex) trading. When foreign exchange quotes are made or when traders transact in forex, they buy and sell currencies by pips.
A pip is the fourth decimal place from the right end of any currency pair quote, such as USD/JPY: 111.00-111.01, where 111 means USD 1 equals JPY 1110 (1 + 0.01 = 1.01).
A market maker or dealer establishes a price for each currency pair based on its value at that moment: it’s worth more than 100 yen if you can sell one unit of US dollars for 101 yen; and it’s worth less than 100 yen if you have to pay 102 yen for each unit of US dollars; their profit would be one pip (=0.0001) per transaction if they were able to buy at say 108 and sell at 110 within seconds—or even milliseconds!
The smallest increment of price movement in spot markets is called one tick (or point), which equals 0.0001 dollar/euro etc., i e $10/$10 etc..
Is Forex like the stock market?
Forex is a decentralized market, unlike the stock market.
Unlike a traditional stock market that has a centralized exchange where buyers and sellers meet, the currency market is an over-the-counter (OTC) system where transactions take place directly between traders.
The forex industry comprises many different types of participants including banks, brokers, ECNs (Electronic Communication Networks), HFTs (High Frequency Traders), and hedge funds to name just a few.
This means that there are many more opportunities to participate in this market than in others—you don’t necessarily have to be big enough or have enough capital to trade stocks on Wall Street; you can start with very little capital and still make good money trading currencies!
Is it possible to trade currencies at any time?
Yes, it is possible to trade currencies at any time.
However, there are occasions when you may not want to do so.
For example, if you’re an investor or trader who wants to invest in a long-term strategy for your money, then it would be disadvantageous to trade currencies on a short-term basis.
Another reason why you might not want to trade currencies on a frequent basis is because the markets are open 24 hours per day and 5 days per week (Monday through Friday).
This means that there will be times when trading the currency pair isn’t open or available due to holidays and weekends in different countries around the world.
Conclusion
We hope you enjoyed learning about some of the basics of foreign exchange trading and how it works. If you’re still unsure about anything, feel free to ask us any questions in the comments section below!
