Forex, also known as currency, FX or currency trading, is a global decentralized market of all currencies operating worldwide. This market is the largest and most liquid in the world, with a daily volume of operations exceeding 5 trillion dollars.
What is Forex?
The other stock markets in the world as a whole do not come close to this. But what does this mean to you? Take a closer look at Forex trading and you will find interesting trading opportunities that are not available in other investments.
FOREX TRANSACTION: ALL IN THE EXCHANGE RATE
If you have ever traveled abroad, you have made a forex transaction. Travel to France and turn your pounds into euros. When you do this, the exchange rate between the two currencies-based on supply and demand-determines how many euros you will get for your pounds. And the exchange rate fluctuates continuously.
What IS FOREX? What is Forex? 02:10
On Monday a pound could give you 1.19 Euros. On Tuesday 1.20 Euros. This little change may not seem like a big deal. But think about it on a larger scale. A large international company may have to pay foreign employees.
Imagine what you could do to the baseline if as in the example above, changing one currency for another cost you more depending on when you do it? These few cents add up quickly. In both cases, you as a traveler or business owner may want to withhold your money until the exchange rate is more favorable.
FOREX OPPORTUNITIES: WHAT IS YOUR OPINION?
As in the bag, you can change the currency based on what you think is worth. (or where it’s headed). The big difference with Forex is that you can operate up or down with the same ease. If you think a coin will increase the value, you can buy it. If you think it will decrease the value, you can sell it.
With such a big market, finding a buyer when you are selling and a salesman when you are buying, is much easier than in other markets. Perhaps you hear in the news that China is devaluing its currency to attract more foreign businesses to its country.
If you think the trend will continue, you could do a forex operation, selling the Chinese currency against another currency, for example, the US dollar. The more you devalué the Chinese currency against the dollar, the greater your profits will be.
If the Chinese currency increases in value while you have your selling position open, then your losses increase and you will want to leave the operation.
PERFORMING OPERATIONS: HOW TO BUY AND SELL CURRENCIES
All Forex operations involve two currencies because you are betting on the value of one currency against another. Think of the EUR/USD, the most-operated currency pair in the world. The EUR, the first currency in the pair, is the basis, and the USD is the counterpart.
When you see a price quoted on your platform, that’s what a euro in dollars costs. You will always see two prices, one is the purchase and the other is the sale. The difference between the two is the spread. When you click Buy or sell you are buying or selling the first currency of the pair.
Let’s say you think the EUR will increase the value against the USD. Your pair is EUR/USD. As the euro is the first, and you think it will rise, you buy EUR/USD. You think the euro will fall in value against the US dollar, you sell EUR/USD.
If the purchase price of the EUR/USD is 0.70644 and the sale price is 0.70640, then the spread is 0.4 pips. If the operation moves in your favor (or against) then once you cover the spread, it could be a gain or loss in your operation.
FRACTIONS OF A PENNY: OPERATE WITH MARGIN
If prices are quoted to hundredths of cents how will you see a significant return on your investment when you are trading Forex? The answer is leverage.
When you operate forex, you are effectively lending the first currency in the pair to buy or sell the second currency. With a market of US $5 trillion a day, liquidity is so deep that liquidity providers, large banks, basically let you operate with leverage.
To operate with leverage, simply set aside the margin required for your operation. If you are operating with leverage of 200:1, for example, you can operate $2,000 on the market by withholding only $10 on the margin of your trading account. For a leverage of 50:1, the same operation size would only require about $40 margin. This gives you much more exposure while keeping your capital investment low.
But leverage not only increases your profit potential. It can also increase your losses, which may exceed the deposited funds. When you are new to the currency market, you should always start trading with small leverage relationships until you feel comfortable in the market.
WHY OPERATE WITH FXCM?
Because we are a leading currency provider worldwide, when operated with FXCM, it opens access to the benefits that only a top broker can provide. You enjoy:
Award-winning customer service: Get 24/5 service When you need it, wherever you are.
Premium free education: With online seminars and real-time instruction, you’ll get the advantage you need in trading.