Have you ever thought about trading Forex and earning an extra income for your home? Did you know that Forex trading is one of the most popular online businesses currently in the world because of the many benefits it possesses?
It’s no secret that many people are making huge profits by doing forex trade in an intelligent way. Everyone is aware of the great potential and possibilities this kind of business provides if done strategically and with good preparation.
But, before we get into all the essential tips and tricks for trading with Forex, let’s see what it stands for, shall we?
What is Forex – understand the term completely
Forex (or just FX) stands for the foreign exchange market for foreign currency exchange. It happens to be the largest market on the planet since it’s open 24 hours a day, five days a week. The trades are affecting pretty much everything, from the price of China’s clothing to a beer you pay during your vacation in the Mediterranean, for example.
In simple words, Forex trading is very similar to the currency exchange everyone is doing when they are travelling somewhere abroad. As a trader, you are selling one currency and buying another one in the exchange office. The exchange rate constantly fluctuates due to the law of supply and demand.
How does Forex trading function?
The Foreign exchange market is available from Monday to Friday, 24 hours a day, and all the currencies are being traded there. The counter (OTC) is responsible for exchanging money, meaning that the physical exchange is excluded altogether.
This market is decentralized, and it doesn’t require stocks. The other financial institutions and a global network of banks oversee the market. The most considerable number of trading happens between institutional traders working for multinational companies, fund managers, and banks.
It’s essential to remember that these Forex traders aren’t necessarily taking physical possession of the currencies themselves. Traders can simply be hedging against or speculating about future exchange rate fluctuations.
Understand the currency exchange in the market
It’s important to remember that all currencies are assigned a three-letter code. It’s almost the same as a stock’s ticker symbol. Although there are more than 170 currencies globally, the vast majority of trading includes the US dollar. The code of it is the well-known USD.
Nevertheless, the second most popular currency in the world is the euro (EUR). In order of popularity, the other vital currencies are:
- The British pound (GBP).
- The Japanese yen (JPY).
- The Australian dollar (AUD).
- The Swiss franc (CHF).
- The Canadian dollar (CAD).
- The New Zealand dollar (NZD).
Which currency are pairs traded the most?
Currency pair is the phrase used to describe two currencies that are being traded. In addition to this, there are also other, less common trades, like “Exotics”. They represent the currencies of developing countries.
The seven most popular currencies in the Forex market are the following ones:
- EUR/USD
- USD/JPY
- GBP/USD
- AUD/USD
- USD/CAD
- USD/CHF
- NZD/USD
What else can influence particular currencies?
Besides the supply and demand setting the currency prices, it’s essential to remember that other macro forces can play a huge role in this decentralized Forex market.
Interest rates, the central bank policy, the political environment, and the pace of economic growth can also influence particular currencies. Since this is the most liquid financial market globally, traders must be up to speed on the dynamics that can cause currency spikes.