Forex is a form of trading that stands for the Foreign Exchange Market. It is the act of trading currency between countries and it is the largest market in the whole world for trading.
So, if you aren’t too familiar with Forex and you are looking to learn, we’ve got a quick round-up of what Forex is all about and how we can trade a range of currency from flat to crypto (https://learnbonds.com/bitcoin-trader) on the FX market.
What is Forex?
As we mentioned, Forex is the market where currencies are traded around the world every single day by big banks, corporations and individual investors. The Forex market is responsible for exchange rate values and this is why you will see them changing every single day as people trade currency between eachother. You may notice that a currency never has a specific value, and this is due to the fact that they are always counted in pairs, and the value you will see is the RELATIVE value between the two. For context, you will see that since Brexit, the value of the Pound against many other currencies has dipped because people don’t want to buy into the UK anymore.
The Forex market is one which runs 24 hours a day from Monday to Friday and is closed on the weekends. The reason it runs for 24 hours a day is that it is international and runs all over the world. Due to the scale and the fact that Forex is carried out everywhere in the world, there is little to regulate it because no single governing body controls it. This can be a great thing because it gives traders the freedom to trade at their own pace and use their own methods.
Currently. Forex traders exchange approximately $5.09 trillion every single day.
How does it work?
Now that we have introduced the idea of Forex, its time to see how people actually trade on the market every day. Forex trading is something which can take a lot of practice, and of course there will always be a lot of complications involved, however, it is something which is actually straightforward, to begin with. If you want to trade Forex and try your hand at this game these are some of the initial things you need to do and need to know:
Choose a currency pair
Before you do anything else, you need to choose a currency pair to trade between. It is very common for people to choose their own local currency alongside another currency. So if you are from the UK you may decide to trade with GBP/USD or GBP/EUR etc. Have a little look online and see what your options are and which ones may be best for you.
Buy or Sell?
When you come to trade currency you will have 2 options: buying or selling. Which one you decide to do will depend on the relative values of your currency pair and how you predict them to change over time. For example, if you were to trade between GBP/USD, you would first want to look at the current values of these currencies. Let’s say that the values are as follows:
1 GBP= 1.28 USD
When you buy or sell currency on the forex market you will have the option to add an order to the trade. This is essentially a rule which you attach to the trade which states that if a variable is met, you close the deal. Here are the two main types of order:
- Stop loss – this order is to close out of the deal if the value of your trade dips below its original value. It prevents the risk of you losing money on a deal
- Limit order – This order is to close out when the value gets above a certain threshold to maximize your profit and ensure you get as much as you can out of a deal
It is always important for you to monitor your stocks as they go as they will be constantly changing every single day. Be ready to close out at any given time and always trust your gut instinct.
To close a deal all you need to do is the exact opposite of what you did when you opened it. So for example, if you opened by selling £100, close it by buying £100 back.
Trading Forex doesn’t have to be complex, however, it will require a lot of skill and risk management to make a success in the trading world.