What is Forex Trading?
Foreign exchange is traded on the Foreign Exchange Market, also known as Forex or FX. Almost everyone who goes on holiday abroad from time to time knows the currencies that can be traded. Besides the euro, there are more than 160 currencies worldwide that can be exchanged not only in a bureau de change or bank, but also on the foreign exchange market. However, trading via an exchange is not carried out physically, so that the currency pairs do not actually change hands, but traders speculate on their exchange rate. In addition to the euro, the main currencies include the USD and GBP.
Who trades on the foreign exchange market?
Participants in the foreign exchange market include speculators (including private traders) as well as:
Every day they trade around 5.3 trillion USD on the global exchanges. Anyone who wants to be active on an exchange needs a licence, i.e. access to the trading centre. Since private investors do not have this access or licence, they need an intermediary. These are the Forex brokers, because with their trading account they offer the interface to the global trading centres.
What is traded?
Investors trade the currency pairs or rather the price movements. One of the most common pairs is EURUSD, which means that the value of the Euro is measured against USD. If the price of this currency pair rises, it means that the euro is worth more than the USD and vice versa.
Learning Forex Trading: an overview of the currencies
If you want to learn Forex Trading, you should first know the possible currency pairs. A distinction is made between:
Major currencies are traded with a particularly high trading volume and are offered by almost all Exness Thai brokers. Due to the high volume, the costs for trading are usually significantly lower than those of the minor currencies and exotics. The main currencies are: USD, Euro, Japanese Yen, Swiss Franc, Canadian Dollar, Australian Dollar, New Zealand Dollar. For example, a currency pair with these major currencies could be as follows: EURUSD, GBPUSD, USDJPY.
Minor currencies and exotics
Currency pairs also include minor currencies and exotics. They are not always available in full at the brokers. The most important minor currencies include: EURGBP, EURCHF or AUDNZD - they usually contain a major currency but are not traded against USD. Then there are the exotics. Traders can trade exotic currency pairs with the Hong Kong dollar (HKD), Norwegian krone (NOK), South African rand (ZAR) or Thai baht (THB), for example. Exotic currency pairs include an exotic currency and a major currency.
Tip: When investors are learning Forex trading, it is advisable to start with the major currencies first, as the volatility is higher and the risk is somewhat lower. However, the volatility also affects the lower spreads compared to the exotics or minor currencies.
Forex quotes: How do they work?
When it comes to learning the basics of forex trading, two terms come up again and again:
The bid price is used to buy a currency; the ask price is used to sell a currency. If you decide to buy a currency, you trade long; if you sell the currency, you trade short.
Taking advantage of rising and falling prices
In foreign exchange trading, investors have various options for investing in the development of foreign exchange rates. Those who speculate that the value of the currency pair will rise and want to sell it at a later higher price usually buy the currencies to make profits. However, if investors see the opposite in the price development, that the price will fall, then they sell.
Price formation for currency pairs
The price of a currency pair depends on the current exchange rate of the currencies included in the pair. The deciding factor is how many units investors receive of the second currency in the pair in exchange for one unit of the first currency.