Forex Trading – What is Forex Trading?

Currency trading is an act of buying or selling one currency for another. Many traders try to speculate on the evolution of currency prices and execute their strategy to profit from this financial market. The variable volatility created by the involvement of banks, hedge funds and retail traders is a major bread and butter for investors. The overall volume of trade in this market beats all others by a significant margin. Almost $ 6 trillion is traded every day on the forex market.

Currency pairs

Currency pairs consist of two currencies, the first being called the base and the second called the quote. There are two types of currency pairs i.e. major and minor. The former contains the USD associated with any other major coin, while in the latter the currency pairs do not include the USD.

Main factors affecting the movement of currencies

There are several economic factors that guide the movement of currencies. A few important ones are listed below:

  • Interest rate
  • Inflation
  • Employment figures
  • GDP
  • Political influences

Apart from these, there are some technical factors that govern the movement of prices, such as trend lines, Fibonacci intervals, areas of supply and demand, etc. Market sentiment also plays an important role in the direction of a currency pair.

Trading sessions

Forex trading takes place during various market sessions or periods which contribute to varying volatility or liquidity. They are named according to the opening hours of the banks in the respective countries. For example, the Newyork session starts from 8 a.m. EST to 5 p.m. EST. During this time, significant volatility is observed in the major pairs as they contain the USD. Tokyo, London and Sydney are noted market sessions in forex trading.

Important terminologies in Forex trading

As a trader, it is important to understand certain terminologies regarding forex trading:

  • Broker. A broker or stock exchange is the company that performs your buy and sell executions. As soon as you place an order, it goes directly to the broker, who fulfills the order using liquidity
  • Seed. Pip is used to denote a change in the value of currency pairs. Traders measure their stop losses and take profits on the value of pips.
  • Many. Lots represent the size of the position at which a trader wishes to trade the market. An increased lot size will allow you to profit more, but at the same time add more risk to the position.
  • Asked and offered price. The asking price is where it is possible to buy an asset while the bid price is provided for sale. The difference between the ask price and the ask price is called the spread. Some brokers will have their fees built into the spreads.
  • Leverage. Leverage or margin is one of the important terms in forex trading. It is money borrowed from a broker that a trader can use to trade. This may allow a market player to open larger positions, but it will also increase risk.

 

Faq

What are the differences between forex and stock trading?

The forex market is available 24 hours a day, 5 days a week, without interruption, while the stock market is limited to certain hours only when the relative exchange is open. The volume of forex transactions is significantly higher at $ 6 trillion every day.

Are there any downsides to forex trading?

There are no major downsides to trading in the forex market if one employs proper risk management, psychology and strategy. Practicing the art of currency trading is one way to be successful.

What are forex trading robots?

Forex trading robots are automated algorithms that perform buy or sell executions and deliver signals based on the encoded information. There are different types of expert advisors such as scalpers, night traders, grids, martingales, day trading, etc.


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