Many people have heard the term Forex trading and as it has grown in popularity, it can be read about in the news and financial publications. In fact, you may even know people who have started to trade in Forex. However, while it has grown in popularity, many people still do not fully understand what it is and how it works. So, what is Forex trading and what is it all about?
What is Forex Trading?
Forex stands for foreign exchange and it refers to the buying or selling of one currency against another one. When you go overseas and you change your currency for the local currency of where you’re visiting, that is a form of Forex trading, but it is on a much smaller scale. Forex trading, on the other hand, happens in a huge market on a large scale. The Forex market is the “place” where currencies are traded and it has become the most heavily traded market across the globe.
The Forex Market
The Forex market is open 24 hours a day, 5 days a week, from the time that it opens on Monday morning on the west coast of the US to the time that it closes on Friday afternoon in Australia. That being said, there are really three trading sessions – the United States, Asia and Europe – and the most active times are while the major markets are open. These include New York, London, Tokyo, Hong Kong, Singapore, Zurich, Paris, Frankfurt, and Sydney. Today, the Forex market trades around US$5 trillion per day!
How Currencies are Traded
Currencies are always traded in pairs – buying one currency and selling the other. For example, GBP/USD is a currency pair of British pounds and US dollars. More specifically, the way the currencies are quoted mean:
1. The first currency listed – GBP – is the base currency and the one that you’re buying.
2. The second currency listed – USD – is the quote currency and the one that you’re selling.
You might see the currency pair listed as GBP/USD = 1.40871. This means that 1.40871 USD is equal to 1 GBP.
There are many factors that influence a currency and whether it will go up or down compared to other currencies. This includes factors from political stability to weather conditions. In order to trade, you must understand what influences currency and keep yourself on top of current news.
Trading in Forex – What’s the Deal?
Because trading Forex means buying or selling one currency against another, you buy a currency when you think it will increase in value and you sell a currency when you think it will decrease in value. With such a large market, it is much easier to find buyers and sellers than when you’re trading other markets. With a large market that operates 24/5, there are plenty of opportunities when it comes to Forex trading and many people are attracted to the excitement and options that it offers. Understanding the market will help you on the way to success.