What is forex
Let's immediately define that forex is a market where interested people (traders) exchange a foreign currency online at the rate of the largest participants outside the world exchange. The market is so liquid and global that it does not depend on specific exchanges. Opening transactions online is faster and more profitable than converters close to home.
However, the amounts that appear here are orders of magnitude larger, and therefore the turnover of the forex market is currently the largest in the world. In fact, neither the stock market with all the shares in the world nor the metal market with all the gold in circulation can compare with the Forex market, whose average daily turnover is more than 6.5 trillion. Dollar
Just imagine this financial power!
The meaning of the term forex
FOREX is an abbreviation of foreign currency exchange. These two words form the basis of the abbreviation Forex or FX.
In this market, it is realistic to start buying and selling currency transactions in a fraction of a second, because this market operates around the clock, 5 days a week, and has a large turnover. Exchange rate fluctuations are several times lower compared to the stock market. The combination of these features allows brokers to provide margin trading for their clients, meaning you can open transactions with a volume that significantly exceeds your current financial capabilities. To do this, brokerage firms provide leverage. You can read this most important trading condition in the foreign exchange market for private traders in a separate article on the FxTeam site.
How does forex work?
The main thing about forex is that the price of a currency is constantly changing.
Now, for example, the euro is 1.2 dollars and in one hour it is already 1.19. The value of a currency expressed in terms of another currency is called a quote. Each of these quotes is placed on the chart in the trading platform and places a dot on it. This point is automatically connected to the previous mark of the asset price. So in forex, in real time, the price chart is drawn and traders sit in front of monitors or smartphone screens and watch how the chart changes to know when to start trading.
We have already mentioned a common modern solution - the lever. Its essence is summed up in the fact that at the time of opening the transaction, the brokerage company adds to its funds. The size of such generosity varies from 1:1 (when you only trade on your own) to 1:500 (when the broker adds another $500 for every dollar you earn).
Also, brokers often allow their clients to trade in smaller volumes than what is traded in the market, i.e. fractional lots. The standard minimum transaction size is around $100,000. However, many brokers allow you to trade with a tenth or a hundredth of this amount.
Thus, it turns out that it is possible to join the trades in the global forex market, and trade amounts from 10,000 dollars are possible even with a relatively small capital, that is, from 100 dollars.
What is traded in forex?
The main currencies traded through online platforms are: US Dollar (USD), Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF). However, you can also start trading cross rates: pairs that do not include the US dollar.
If everything is good in the country and the health indicators of the economy are even better than expected, it is likely that the national exchange rate will increase. And if the news is bad and the statistics of the region are not encouraging, you cannot count on the growth (strengthening) of the currency. In other cases, everything is not so simple, fluctuations occur within a week or day, which visual lines help to work with, so to speak. Their trading technical indicators help determine the direction the price is currently moving, how strong the current trend is, and what will happen in the future.
Traders are guided by these indicators and economic news from global news feeds. Based on the whole set of information, users draw conclusions, use an opportune moment to start - and move up and down trades to buy and sell.
Here's how it works: Let's take as an example the most popular currency pair on the market - Euro-Dollar (EURUSD). The US dollar in Forex depends on the US situation, the Euro depends on the EU situation. Traders around the world hear news from these areas and react to them by increasing or decreasing demand for Euros and Dollars.
If there are more people in the market willing to buy EUR (the currency in the first pair), the price of EURUSD will rise. If there are more people in the market who are determined to sell EUR, the price of EURUSD will fall. This is how the basic law of supply and demand works.
Those who believe prices will rise are called bulls. Those who are sure that the price will fall are called bears.
However, if the statistics of the Eurozone are not significant for traders and there are more in the market who are determined to buy the dollar (the second currency in the pair), the EURUSD rate will start to decrease, ie. Go in favor of the dollar. Analysts say about this situation: The dollar started to strengthen against the euro.
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