The Forex market

The Forex market is the market where currencies are traded and where the value of a currency is quoted. Forex traders will therefore seek to exploit variations in this value to make money on the stock market. In this article we will look at the basics of Forex and trading.

What is forex

Forex is a portmanteau referred to foreign currency, which is the foreign exchange market, where currencies are traded and traded.

These trades on the Forex market create variations in the prices of currencies, which the Forex trader seeks to exploit to make money.

The Forex market is a global market, the second largest in terms of trading volumes after the interest rate market.

Understanding Forex

We have seen above that Forex is the market where currencies are quoted, but you should know that currencies are quoted in pairs. We express the value of one currency relative to another currency.

How to read a Forex quote

When we see that EURUSD is at 1.1500, we should read that 1 euro is worth 1.15 dollars. EUR is the base currency and USD the counter currency. So the EURUSD pair gives the value of 1 euro expressed in dollars. Generally, the quote on the trading platforms shows 4 to 5 digits after the decimal point.

Which currency pair to trade

We immediately understand that there are hundreds of currency pairs to trade on Forex, each currency is expressed in the value of each of the other currencies: EURUSD, EURGBP, EURJPY … then USDJPY, USDCHF, USDCAD … and so on.

However, the Forex trader often chooses to focus only on the “main” currencies: EURUSD, GBPUSD, USDJPY and USDCHF, and sometimes adding AUDUSD, NZDUSD and USDCAD. This allows for better tracking of price changes, but also of news affecting prices.

What influences Forex

Forex trading therefore requires you to follow the evolution of prices and current events, but also understand how current events affect currencies.

To make the stock market analogy, we can consider that the country (or monetary zone) is the company and the currency is the stock. Any positive or negative news about a country will have an impact on its currency, always based on the principle of supply and demand.

Among the factors that most influence the price of a currency are interest rates, inflation, growth, employment, but also political events. Not to mention the monetary policy of central banks.

For this reason, the economic calendar is a fundamental working tool for the trader.

Why choose the Forex market

  • the forex market it is a market open 24 hours a day, 5 days a week. It therefore offers the possibility of trading on longer time slots than other markets. This is particularly useful when an event is expected in the evening, but also to open / close a position at any time, without having to wait for the markets to open the next day and experience price gaps. This can save the trader in case of surprise news after the closing time of other markets.
  • Additionally, Forex is the most liquid market in the world, making it easy to find a counterparty for your position. This allows for quick execution of trading orders and avoids running into discrepancies between the asking price and the price obtained: slippage.
  • Finally, brokerage fees in Forex are generally lower than in other markets.

What is trading

What is trading? What is trading?

Commercial explanation. Trading is the buying and selling of financial assets to profit from rising or falling prices.

Unlike a “classic” investor who buys a product and waits for its value to increase over time before reselling it, the trader it is generally more part of a more dynamic approach, with trades that can take a few days, minutes, or even seconds.

This is a potentially more profitable approach, but also a riskier one.

What is Forex trading?

Forex trading therefore consists of buying and selling currency pairs on Forex, trying to predict which direction the pair will take in the next few days or minutes.

Understanding trading

How to trade Forex?

To trade on Forex, you need to go to a broker (broker) and open an online account. First and foremost, it is highly recommended that you start with a Demo account for virtual trading and learning, before investing your money.

Learning the basics of trading is an essential prerequisite for understanding Forex and hoping to make money.

Online training is generally offered by brokers.

Which trading strategy?

Two main currents collide in trading theories: fundamental analysis and technical analysis.

  • Fundamental analysis consists in the study and analysis of economic data to know the value of a company or the state of health of a country. From this, a “fundamental” or “real” value of the security or currency is obtained, to be compared with the value observed on the market.
  • Technical analysis is the study of price charts, assuming that certain price patterns repeat themselves. The practice also includes statistical studies on price trends. Indirectly, we also deal with the psychology and mass behavior of traders.

To summarize, fundamental analysis focuses on the company, country or asset represented, while technical analysis focuses on price.

A consensus tends to emerge on the need to combine the two practices, rather than oppose them.

Forex trading can be risky, so try to know everything about trading before betting your money.

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