Trading allows you to make more than other businesses, and it also allows diversification. People interested in trading can trade in stocks or foreign currencies. The Forex market offers an excellent opportunity for trading, and the transaction costs are comparatively low compared to other markets. If you don’t already have one, you can get a forex funded account here.
If you are interested in the Forex market, you need to have good knowledge about Forex exchange. There are several websites like The Forex Winner that can help you in dealings in Forex exchange. Here is a beginner’s guide to dealing in Forex exchange.
What Is Forex Exchange?
The Forex exchange market is a place where foreign currencies are traded. Currencies are an integral part of the global economy, and they are used to buy services and goods across borders. Currencies are exchanged in foreign trade and businesses. For example, if Company A from the US wants to buy cheese from Company B in Switzerland, Company A needs to pay Company B’s cheese price in Euros. To make the trade happen, Company “A” exchanges the equivalent value of US dollars into Euros.
One unique thing about the Forex market is there is no central marketplace for currency trading. All currency exchange transactions occur digitally over the counter via computers networks of Forex traders across the world. The Foreign exchange market is open for five and half days a week, and it never closes during this period(Monday to Friday). Currencies are traded in major financial centers like Zurich, Tokyo, London, Singapore, Paris, New York, Sydney, almost across all time zones.
How Does Forex Work?
Individuals, banks, companies, and governments need foreign currencies every day. Whether directly or through the brokers, all of them come together to buy and sell currencies. It creates a market, and you can see the prices of currencies being traded on websites like The Forex Winner. When you are trading Forex, you are exchanging currencies. It means one party is buying a currency while the other is selling a currency. Both parties involved in the Forex trade are dealing in different currencies, generally a pair. For example, if you are a US company buying EUROS to pay a Swiss Company, you will be paying in US dollars and getting the Euros. The seller of the Euros will receive the value equivalent of Euros in US dollars.
The currency price is always mentioned in pairs. For example, the Forex market currency chart will show the US/Euro currency price as (depending on current market rates)
Euro/US dollar as – $1.16
US/Euro as 0.86 Euro
Base Currency and Quote Currency
As mentioned earlier, the price is always mentioned in currency pairs. The first currency in the pair is known as the Base currency, and the second currency is known as the Quote currency. If the currency price is mentioned as Eur/USD
- Eur is the Base Currency
- USD is the Quote Currency
Minor and Major Currency Pairs
Theoretically, the Forex market should offer you access to all global currencies. But that does not happen. Traders manage the Forex market across the world. You only get access to currencies traded by the broker you select. The currencies are broadly classified into three categories.
There are six major currency pairs, and they account for 80% of the Forex trade. The major currency pairs are
- USD/CAD – US dollar/Canadian dollar
- AUD/USD – Australian dollar/US dollar
- EUR/USD – Euros/US dollar
- GBP/USD – British pound/US dollar
- USD/JPY – US dollar/Japanese yen
- USD/CHF – US dollar/Swiss franc
These currencies are less traded, and none of the currency pairs has the US dollar. The minor currency pairs are
- SGD/JPY – Singapore dollar/Japanese yen
- EUR/AUD – Euro/Australian dollar
- CHF/JPY – Swiss franc/Japanese yen
- GBP/CAD – British pound/Canadian dollar
- NZD/JPY – New Zealand dollar/Japanese yen
- GBP/JPY – British pound/Japanese yen
- EUR/GBP – Euro/British pound
- GBP/MXN – British pound/Mexican peso
To sum up, Forex trading is lucrative and can help you earn good profits provided you stay updated and learn about new technologies used in Forex trading.
You must however, keep in mind that, while there’s a chance of high returns with Forex tradings, there is also a significant amount of risk involved. Remember to only invest what you can afford to lose.