Is “Forex” just another fancy business word? What does it even stand for? Follow along as we staple out the basics of Forex Trading.
What Is “Forex Trading”?
Forex is short for Foreign Exchange. This term is used to refer to the purchasing and sales of shifting one currency to another. It’s one of the most involved trading markets in the world specifically because it involves so many players. Having a global market means that almost anyone can participate.
Anytime you transfer money, even when just going on a family vacation, and trading one currency to another you play a role in the marketplace. The demand for a currency, or lack of, is what pushes the price in either direction. The higher the demand, the more money the currency is worth.
Basic Facts To Keep In Mind
- When dealing with the global exchange market and currency exchanged is always done in pairs. Trading one form of money for another involves two total types. This is what also allows us to see what one cost is relative to another, and the demand between the two.
- The global trading market has a variety of symbols that they use to denote different currencies.
- EUR – Euro
- USD – US Dollar
- AUD – Australian Dollar
- GBP – British Pound
- CHF – Swiss Franc
- CAD – Canadian Dollar
- NZD – New Zealand Dollar
- JPY – Japanese Yen
- Each trading pair has an associated price. It shows how much of the second currency is needed to buy one unit of the first. To find out how much of the primary currency it takes to buy the second flip the pair and divide one by the current rate.
- Currency pair prices with the forex trading market are continually fluctuating as the market continues to process and churn numbers 24/7. Pairs can move around 50 – 100 pips a day (depending on market conditions).
- Pips are referring to the fourth decimal place on a currency pair number. This is the second decimal place when dealing with the Japanese Yen (JPY).
- Naturally enough, your profit on a thriving trade is dependant upon how much currency previously purchased.
Final Notes on Forex Trading
The best way to get into Forex Trading is to look at the market yourself. Watch trends and numbers and even play around in simulators with fake money to get a feel for how things work. From there, the world is your oyster. Happy trading!