FOREX FOR BEGINNERS

Posted by Samson Kuye on

What is forex

The term “Forex” is short for foreign exchange market, which is where different currencies are exchanged in a continuous fashion by millions of people all over the world. Forex is the act of buying and selling currencies against each other as a short-term trade (scalping), Long-term investment (position trading) and something in between the short-term and long-term trade (swing trading). It isn’t difficult to conceptualize about Forex trading. Tourists who travel from one country to another must exchange currencies in order to pay for a local product or service. A wad of Euros would be totally useless to an Italian tourist wishing to visit the Sphinx in Egypt because it is not the locally accepted currency. The tourist would have to exchange his Euros for the local currency, Egyptian pounds, at the existing exchange rate that day.

Even without knowing much about Forex trading, residents of one country exchange currencies with another country each time they purchase a foreign product. For example, someone living in the U.S. who wants to buy a nice bottle of French wine may pay for it in dollars but the wine has already been paid for in Euros. Somewhere along the line, either the wine producer or the American importer had to have exchanged the equivalent value of U.S. dollars (USD) into Euros. This is all about Forex trading.

Unlike the New York Stock Exchange or other stock markets, there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week.

Another thing about Forex trading: The need to exchange currencies is the primary reason why the Forex market is the largest, most liquid financial market in the world. It outperforms other markets including the stock market, with an average traded value of around U.S. $2,000 billion per day compared to over $5 trillion traded in forex market daily. Being aware of the magnitude of Forex trading should be enough of an introduction to Forex trading to motivate the eager investor to plunk down his money and start to trade.

Traders can make a lot of money by trading on the Forex market. The more a trader knows about Forex trading, the more successful he will be. It’s really a very simple concept. In our next lesson at FX Academy, you will learn more about Forex trading and what exactly is traded on the Forex markets.

The buying and selling of currencies in forex trading are traded in pairs.  The act involves buying of one currency and sell of the other versus currency simultaneously. Example: (EUR/USD) Euro versus U.S Dollar, buying of U.S Dollar requires selling of Euro simultaneously. There are series of different currency pairs traded in forex trading business.

 

EUR/USD                   Eurozone / United States                      “euro dollar”

USD/JPY                    United States / Japan                         “dollar yen”

GBP/USD                   United Kingdom / United States          “pound dollar”

USD/CHF                   United States/ Switzerland                    “dollar swissy”

USD/CAD                  United States / Canada                         “dollar loonie”

AUD/USD                  Australia / United States                       “aussie dollar”

NZD/USD                   New Zealand / United States                “kiwi dollar”

 

The above-listed currency pairs are called the MAJOR currency pairs because they are the most frequently traded pairs. There are other pairs called MINOR because they are less frequently traded.

In the currency pairing, there is currency-cross or cross-currency as it may be. All the major currencies are paired with different other currencies, this is called cross pairs.

Examples: 

                                                (To be continued)

 


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