Forex Trading
Forex is an abbreviation for foreign exchange, the international marketplace that facilitates the trading of different nations’ currencies against one another. Every day, nearly two trillion dollars’ worth of various global currencies are traded in the forex marketplace, making it the largest financial marketplace in the world. It’s the most liquid marketplace in the world, growing in popularity as we speak and operates 24 hours a day. There is no central exchange location for the forex marketplace; trades happen at any time over various electronic methods, but primarily the internet.
The forex marketplace is what actually determines the relative value of the various world currencies. The forex market facilitates international trade, serving businesses seeking to import from countries and allowing them to do so regardless of currency. The forex marketplace has made it possible to directly speculate on the value of different currencies, and this has brought about a new stream of profit for enterprising traders.
Trading forex may seem confusing at first, especially to traders only familiar with working in stocks. The forex market provides extremely high leverage for traders, which can make for rapid gains or large losses in a very short amount of time. There are obvious differences between the process and terminology of forex trading versus that of the stock market. If you are considering investing in the forex marketplace, be aware of the terminology and how it differs from the stock market. For people who come from a background of trading stocks, the forex trading terminology will seem quite different. A person wishing to begin forex trading needs to become thoroughly familiar with terms like pips, currency conversion rate, and money exchange rate.
It may not be immediately apparent to everyone exactly how prices are determined in forex trades. The price of stock in the stock market is determined by factors that are unique to the performance and circumstances to the company or organization. Forex transactions always involve pairs of currencies – two different currencies traded against one another. Forex traders primarily focus on the US Dollar, the Euro, the Yen, the Franc, and the British Pound. There is an advantage inherent to tracking such a focused market; instead of investigating trends over different aspects of the marketplace and studying the individual fundamentals of hundreds of different companies, traders can stay fairly current by simply keeping up on the political and economic news in the eight or so primary countries that feature the major currencies.
A currency quote is done in terms of its relation to the opposite currency in the trade; the base currency is measured in its equivalency in the quoted currency for the pair. A currency moving up or down against another currency is how value is determined; they may both decline or gain value relative to other currencies and it will not impact the outcome of your trade. That’s not to say that currency valuations aren’t highly complex in their own right.
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