What is Forex?
Forex is a generic term for foreign exchange. It’s a global market where people buy and sell currencies by trading on the interbank market or on derivatives exchanges. Traders can hedge against increases in the price of a specific currency by going long on the market or short on the interbank market, but they can earn a positive return by correctly timing the market. There are two types of forex trading: spot trading and forwards trading. Spot trading refers to trading a single currency in the spot market. In the future market, a trader has the flexibility to buy or sell an underlying asset in a single currency at a specified price. Forwards trading is a form of interest rate trading where the investor agrees to buy or sell a fixed amount of a currency at a specified exchange rate at a future date.
How to trade in Forex?
Forex trading can be done through online brokerage accounts and online brokerages that offer trading forex as a commission-free alternative to investing in stocks and shares. There are a number of online brokers offering trading forex, which may be confusing especially for beginners. You can get started by searching for forex brokers in your country. Before opening an account with a forex broker, be sure to read the broker’s terms and conditions carefully and make sure you agree with them. Once you have signed up, you will be asked to create an account with your bank. After this, your broker will transfer your funds to your trading account. You can then trade forex in a number of different ways, depending on your preference and the condition of the market.
Important terms in forex trading
Trading margin - This is the amount you need to put in your trading account to execute a trade. This will be the difference between the value of the trade and the funds you trade with. An account with a higher trading margin is more risky as it means you are risking more of your funds on each trade. Meaning of the terms - FX, EUR/USD, GBP/USD, AUD/USD, JPY/USD, USD/CHF, etc.
Top 3 most commonly traded currencies in the Forex market
- USD/JPY: The USD/JPY currency pair is one of the most commonly traded currency pairs in the world. The USD/JPY currency pair is very liquid and has a high trading frequency. More than $5 trillion worth of USD/JPY currency trade hands in the forex market every year. - EUR/USD: The EUR/USD is the second most commonly traded currency in the world and the most liquid Forex pair. More than $1 trillion worth of EUR/USD currency trades hands in the forex market every year. - AUD/USD: The AUD/USD pair is the third most commonly traded currency in the world and the most liquid Forex pair. The AUD/USD pair is also one of the most actively traded Forex pairs.
Popular exchange platforms for Forex trading
- XM: A top online broker for forex trading, XM offers interest rates to traders who open an account with them. XM has a number of trading platforms that enable traders to access a wide range of assets. - IG: IG is a top forex broker in Europe. The IG platform is simple to use and offers a number of analytical tools to help traders make better investment decisions. IG is also one of the world’s most liquid forex exchanges. - TD Ameritrade: One of the world’s largest online brokers, TD Ameritrade has gained a strong foothold in the forex market. The TD Ameritrade platform is easy to use and offers comprehensive trading tools.
Conclusion
Forex is a global market where people buy and sell currencies. Traders can hedge against increases in the price of a specific currency by going long on the market or short on the interbank market, but they can earn a positive return by correctly timing the market. The USD/JPY, EUR/USD, and AUD/USD are three of the most commonly traded currencies in the Forex market. Forex trading can be done through online brokerage accounts and online brokers that offer trading forex as a commission-free alternative to investing in stocks and shares.