What is foreign exchange trading? What is forex? These two questions are focused on the same concept: Forex.
What is foreign exchange trading?
Forex stands for ‘foreign exchange’, which is the global trading market for currencies. In this market it’s possible to trade in many currency pairs. For example the most 7 common ones are:
All of these symbols represent the currency of a country. For instance USD is the United States Dollar, EUR is the Euro, GBP the British Pound, CAD the Canadian Dollar, AUD the Australian Dollar and NZD the New Zealand Dollar. These 7 currency pairings that are listed above are known as the ‘majors’, as they are the most commonly traded currencies on the Forex Market.
It should also be mentioned that beyond these 7 major pairings, there are still over a 170 different currencies across the globe that are used in the market for further currency pairings, which offers a lot of choice for forex exchange trading. Yet in terms of popularity, the EUR/USD remains the most popular pairing worldwide for traders.
When a currency is compared to another, their value is called the exchange rate.
For those who have travelled abroad to foreign countries, most people will have had the experience of changing up money into the local currency. The amount that will be received back all depends on the latest exchange rate, and this exchange rate can change very rapidly in a short amount of time. It can grow/increase or drop down/decrease depending on the latest rate.
The exchange rates though can be affected by many factors though. Some worth mentioning include the national unemployment rate, political situations, international agreements, the national consumers’ rate and inflation for instance.
One political situation that is currently affecting the GBP/USD exchange rate right now is Brexit. British politicians are still deciding and struggling to settle on the best deal for the United Kingdom to leave the European Union in 2019.
With the ongoing political uncertainty, this has caused the GBP/USD pair to decline in value. It will be interesting to see how the Brexit situation plays out, but it clearly shows that any national change can affect the exchange rate.
Who is mainly involved in the exchange market?
The main participants to this market are banks, financial institutes, companies and small private traders.
This means that everybody, especially private traders, can trade in this market and it doesn’t require a big amount of money to do so. What an individual will need is access to a respected trading platform and to have a good trading strategy in place.
What is a trading platform?
A forex trading platform is an online platform where it’s possible to trade forex. All these platforms are owned by various brokers. There are a lot of them to choose from, the only important thing to remember is to find a trustworthy and regulated one. To learn more about this topic please read further our related article on our trading platform page here.
What is a foreign exchange trading strategy?
A forex trading strategy is a way for a trader to invest in the market. There are many strategies available for every type of trader. To learn more about this topic further, please read our forex trading strategy page.
Now returning to the main question of ‘what is foreign exchange trading?’ This is when a trader invests in this market and has the opportunity to earn some money by deciding if the exchange rate of a currency pair will either grow up or fall down. If the prediction is correct, the trader must decide whether to sell or buy the asset in order to make a profit.
‘Trading in this market means deciding if the currencies pair price will go up or down and because of that decision, proceeding to buy or to sell it.’