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What is forex trading? How does it work?

forex


Foreign exchange or FX trading is the most active trade market nowadays. If you also want to know about forex trading, read on.

Take a closer look at this trade market. In the forex market, every day, trillions of dollars are traded in the whole world. There is no specific location of the forex market as it an electronic network of brokers and bankers.

What is Forex Trading?

It is an electronic network of buyers and sellers that exchange currencies. Buyers and sellers exchange money at an agreed price. The banks and individual companies transfer the money from one currency to another. For example, pound to dollar etc.

Nowadays, people prefer forex trading to gain profit. The volatility of forex trading makes it more attractive. Forex trading enables a person to get more profit.

Currency Market Working

Forex trading spreads over four big countries that are Tokyo, New York, London, and Sydney. The global network of forex traders is under these centers. Without the share of currencies, forex trading does not take place. The OTC over-the-counter market is working to exchange currency coins.

Three main types of forex markets are functional.

  • Spot Forex Market
  • Forward Forex Market
  • Future Forex Market

How does Forex Trading work?

Forex trading work in several different ways the working is the same as all the brokers and bankers are buying and selling currencies. Mostly the forex trading is done by the broker. With time and a rise in the online market, CFD trading is popular.

In CFD trading, leverage and non-leverage products are involved. The leverage products are more beneficial and enable you to gain more benefits. If the market is going against you, you have to face losses.

Forex Currency Pairs:

The base and quote currency is involved in forex trading. The first currency is the base currency and the second one is the quote currency. Depending upon the price and value of currencies, each pair has a three-letter code.

Suppose the GBP is the base currency and USD is the quote currency. If GBP/USD is trading, then the value of one pond is 1.35361 dollars. If the value of the pair increases, you can buy more pairs, while if the value decreases, you can sell the currency pair.

Major pairs: The major currency pairs contribute 80% of forex trading. These pairs are EUR/USD, USD/JGY, GBP/USD, AUD/USD, USD/CAD.

Minor pairs: The minor currencies contain less frequency. These are EUR/GBP, EUR/CHF, GBP/JPY.

What are the spread, lot, and leverage in forex trading?

The spread is the difference between the two currencies. If you have to buy a pair of a long position, buy it, at a price slightly above the market price. And if a short position, then sells it at a below-market price.

The lots are units of Forex Trading. A standard lot is 100,000 units. The forex trading moves in standardized currency batches.

At the leverage position, the profit and gain depend upon the size of the trading market. The leverage can maximize the profit and increases the risk of losses.



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