Forex or foreign exchange refers to the process of exchanging currencies for either trading, commerce on any other reason. People participating in online forex trading include forex brokers, commercial and investment banks, institutions and retail investors. Forex trading occurs in a decentralised market where there is no central location for currency trading. Instead, foreign transactions occur over the counter (OTC), electronically among traders around the globe.
The foreign exchange market & currencies
As already mentioned, trading forex involves exchanging one currency for another. Each country’s currency has a significant role in allowing people to purchase goods or other services from another country.
For example, if a person would like to buy something from a foreign country, i.e., from Europe, then he/she would need to pay in euros, so there would be an exchange of the person’s currency into euros. Likewise, if someone visits France and the only accepted currency is EUR, then the person would need to exchange his/her currency at the current exchange rate.
An exchange rate refers https://www.ironfx.com/en/ to a currency’s value compared to another currency’s value. In CFD trading this is always represented through acronyms of the specific currency. For instance, GBP stands for Great Britain Pound whereas USD stands for United States dollar. The quote for this pair would be GBP/USD. Its exchange rate currently is 1.36. In the question of how many dollars it takes to buy a pound, the answer would be that it takes $1.36 to buy a pound.
What a forex broker?
To begin with, a forex brokerage is a financial service company and the means through which traders trade in the forex market through a platform. Most of these forex brokers offer the MT4 trading platform with which traders can speculate on the movement of currencies and manage their positions and trades.
A forex broker is also known as a CFDs broker and provides access to trading CFD on forex, shares and more. Most importantly, brokers enable traders to trade numerous currency pairs through various account types and tools.
How do trading and brokers work?
Traders simply register with an online broker, fund their account, download the online trading platform for beginners and start trading. To achieve this, they choose their position, and they buy and sell currency pairs. Taking the GBP/USD as an example, the trader would open a position by buying this pair and close the position by selling the pair. If the exchange rate is higher when the trader closes the position, he/she makes a profit. Otherwise, he/she takes a loss.
Additionally, a forex broker usually provides leverage meaning that traders get to trade a higher amount than what they have initially deposited in their trading account.
Why trade forex
The forex market is the largest and most liquid market with $6.6 trillion daily trading volume. This means that buying and selling currencies is very easy as there are many participants
There are flexible trading hours to trade forex. In fact, the market is open 24 hours per day for 5 and a half days per week in the major financial centres of the world, such as Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich. This way, traders can trade anytime, anywhere.
There is usually a comprehensive suite of educational and trading support offered by the forex broker that traders will choose. There are also advanced platforms and ample trading instruments to choose from.
Suitable for both beginners and professionals as usually a demo account is offered for new traders to practise on. Experienced traders can benefit from advanced features like copytrading.