What is Forex?
Forex – the short answer – is the “foreign exchange” market. But what does that mean, and why should we care?
To understand this, it’s best to think of Forex as a single entity instead of a collection of currencies; you can think of Forex as “the market” rather than thinking about individual countries’ currencies. The US dollar (USD) value relative to that of another currency like GBP or EUR will be different depending on how much USD someone buys with their GBP or EUR. This means that when you’re trading in the forex market, you’re not buying and selling any one particular country’s money-you’re buying and selling units of “the market.”
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Forex is international
Forex is an international market that exists all over the world. While some currencies are traded more frequently than others, you can trade 24 hours a day for five days a week with no holidays or scheduled downtime. Forex trades happen between two parties on an online platform, and the current market value of one currency to another is defined by supply and demand-just like stocks. Forex trading differs from stock trading, though, because there are no commissions on individual trades (although some brokers do charge monthly fees), making your per-trade costs very low. The prices are quoted as pairs, for example, EUR/USD or USD/JPY. The first part of this pair is called the “base” currency, and the second is called the”quote” currency.
The biggest forex brokers offer online trading in major and minor currencies like the USD, EUR, GBP, JPY, and more. Many also offer services for CFD (contract for difference) instruments on indices, commodities, bonds, and even cryptocurrencies. Some of these brokers have been around for decades since the early days of electronic trading-and others are relative newcomers to the market.
Forex has thousands of different assets.
Forex is a highly liquid marketplace with thousands of different assets being traded at any given moment by millions of people worldwide, which means that prices move very quickly. For example, if you wanted to buy 200 lots (equivalent to 200,000 currency units) of EUR/USD with a current bid price of 1.2140 and an ask price of 1.2160, you would be able to buy those 200 lots at the best available price-which might not be for several seconds or even minutes if there is very high demand for EUR/USD at that moment in time. For this reason, it’s essential to always have a “plan B” when trading FX: consider your exit strategy ahead of time before making your first trade.
The global appeal of Forex
The Forex market has global appeal because currency valuations are relative compared with other currency values (for example, USD vs EUR). You can think about currency as though everything bought and sold throughout the world was priced in US dollars, and in a sense, that’s precisely what happens. Currency conversions are necessary because most companies and countries don’t do business exclusively in their currency; they also trade goods and services for other currencies.
The appeal of the Forex market is also due to its size. You can think of the forex market as a single entity instead of a collection of different countries’ currencies since it is traded by people worldwide. The current daily volume (total number of trades) on all major currency pairs is around $5 trillion per day! Compare this to the $22 billion per day average trading volume on the New York Stock Exchange (NYSE)
As such, even small changes in supply and demand conditions can cause major changes in currency valuations. You can take advantage of these dynamic shifts with the right strategy and proper knowledge.
Forex fundamentals conclusion
The most important thing to understand about trading forex is that you’re trading a market, not any one particular country’s currency. Most people trade currencies because they want to make quick profits off small price movements; this requires you to be somewhat nimble with your money since there may be several hours or days before your trades are executed.