What Is Forex Trading And How It Works?
I became a trader after hearing that the FX market is the largest actively traded and most liquid market in the world with a turnover of over five trillion. The made me research further and realized that Forex is the global market place where institutions, investors and banks trade world wide 5 days a week, 24 hours a day.
As a trader in the forex market you will be speculating the increase or decrease in value of currency pairs, whether one currency will rise or fall against the other using platforms provides by brokers and you can trade on laptop. tablet, pc, phone. Therefore you will profit as a trader by speculating the correct direction currencies are likely to take over the future.
Inorder for you to understand the major drivers of supply and demand in the currency Market. The supply and demand of a currency pair is influenced by political, geopolitical and economic events which creates daily volatility which may offer new trading opportunities.
Lets move on to the reading the 3 letter code assigned to all currencies from different countries and expressed as a combination of currencies being expressed. In the list below showing the 3 letters assigned to majors: United States/USD, Eurozone/EUR, Japan/JPY, Great Britain/GBP, Switzerland/CHF, Canada/CAD, Australia/AUD, New-Zealand/NZD, you will understand how to read quotes which i will explain below.
Trading is expressed as a combination of the two currencies being exchanged. Each pair represents the exchange rate or two currencies. for example GBP/USD pound-to-dollar exchange rate. The list below shows the majors which account for 75% trading:
EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF, NZD/USD. Base currency first quote currency second.
Lets say GBP/USD exchange rate is 1.4, that means it will cost $1.40 to buy £1. Forex traders attempt to buy currencies whose values they think will increase relative to other currencies.