An Introduction

What is forex trading? With daily turnover in excess of $5 trillion, foreign exchange, or forex (also known as FX), is the biggest trading market in the world. Unlike traditional exchanges where stocks, products, and goods are traded, forex is a market where people and companies from all over the world try to earn by trading national currencies. Put simply, it is the process of making a profit by exchanging one currency for another. The profit is in the difference of various currencies' values, and everything is based on the tried-and-true golden rule of trading: buy low, sell high. Because of this many people across the globe are asking the simple question: what is forex?

Forex trading is all about speculation and predicting financial markets gyrations. Although the basic principle is simple--buying and selling different currencies--the reality is more complicated. The value of money is an extremely changeable asset. In fact, it is--as some economists like to say--the most unpredictable merchandise. Its value depends on almost everything that is connected with both global and state politics and their attendant economic situations.

Forex is a market giant that is not limited to a physical location or state borders. Forex trading is also not limited to daily working hours. It is always busy in the currency exchange market because the situation is changing every moment. There is no downtime if you want to be successful in forex trading.

Our Answer To "What Is Forex" Question

The first thing you need to know when asking yourself “what is forex?", and considering whether you want to learn about forex trading is to realize that it is a highly competitive business, and that as with all trading, there are no guarantees you will be successful. You must put a significant amount of time and effort into learning and you must have a can-do disciplined mind-set. You must possess the ability to both learn from and emotionally detach yourself from your inevitable losing trades. The potential for both profit and loss are higher than in traditional types of trading.

The forex market is virtually 24/5, starting on Monday morning in New Zealand's capital (Wellington), and ending in New York on Friday.

Because the underlying asset is so abstract and fungible, the required trading margin (deposit) is minimal — as little as 1%, or even less, depending on the instrument and the nature of the transaction; open-ended or time dependent (like options that expire). Every pair consists of the so-called "base currency" and the "counter" currency. In a nutshell, you have to predict the optimal time when buying or selling. For example, if your currency pair is EUR/USD, then the base currency is the Euro, while the counter is the US Dollar. The perfect time for buying this pair is when the Euro is about to strengthen against dollar. On the other hand, you should sell your pair if you think that the dollar will appreciate relative to the euro.

In Summary

So overall, what is forex? As previously stated, trading forex looks easier than it really is. There are a myriad of factors that affect the values of currencies. With so many variables changing all the time, an investor has to stay very focused and pay attention to even the smallest details. It is not an easy job, and it is not even the most profitable job. But with the proper strategy, knowledge, experience, and the right forex broker, you may earn a sufficient profit on forex trading.

What is Forex Trading?

Forex is foreign exchange. It is the exchange of one currency in a pair for the other currency in a pair. In order to understand what is foreign exchange, it’s worth considering the components of a FX pair. There are two currencies in a forex pair; the base currency and the quote currency. A solid education in forex trading will pave the way for a better understanding of how to trade forex. Many economic phenomena can affect trading activity with forex pairs. These include interest rates, inflation rates, balance of payments, geopolitical factors, speculative activity, recessions, et al.

Forex trading basics are as follows: one currency is exchanged for another currency in the same pair. There are 3 broad categories of currency pairs, notably:

Major Pairs – these all include the USD as either the base or the quote currency. 80% of global FX trading is done through major pairs. There are 7 major pairs.

Minor Pairs – these include a major currency, but not the USD. Examples include GBP/JPY, EUR/GBP, and EUR/CHF.

Exotic Pairs – these include a currency major and the currency of an emerging market economy. Examples include USD/ZAR, GBP/TRY, or USD/MXN.

Many new traders want to know what is forex trading affected by. The answer is a combination of factors that directly affect the demand for currency. High interest rates send bullish signals, while low interest rates send bearish signals. For an understanding of what is foreign exchange, it’s important to keep it simple. Currencies in the same pair are simultaneously bought and sold. Traders expect one currency to appreciate or depreciate relative to the other currency in the pair. That’s forex trading in a nutshell.