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What Is Forex Trading and Forex Market?

Fundamentals of Forex Market

Introduction 

Forex Market is also known as foreign exchange, currency trading, or FX market. Forex market, the biggest liquid market across the world, is a decentralized worldwide market where you can trade every currency of the world with each other. In the Forex market, businesses, banks, traders, investors, and governments all come to speculate on and exchange currencies.  The Forex market has a daily turnover with over 5 trillion US dollars which is more than the combined turnover of the bond and stock market. This propelling turnover makes it an attractive market to beginners, private investors, individual traders, and everyone around. 

How does the forex market work?

Unlike other markets, like the commodity market or the stock market, currencies aren’t traded at a centralized exchange. The Forex market is a decentralized market that lets a variety of people access it – swap a currency against another currency or buy currencies.  In this market, currencies are always traded in pairs. 

Unlike commodities or shares, forex trading takes place between two parties directly. The Fx market is operated by a worldwide network of banks that are spread across four main Fx trading centers having different time zones. They include New York, London, Tokyo, and Sydney. Since it does not have a central location, currencies can be traded in the Forex market 24*7. Most traders who speculate on the currency prices don’t plan to take the delivery of the currencies, instead, they predict the currency prices and take advantage of their price movements. 

How does money regulate in the forex market? 

The Forex market is the largest and the most liquid market in the world. Its scope and size offer unique challenges when it comes to money and market regulations. There is no central body to given the Forex market. Rather, many independent and governmental bodies supervise Fx trading across the world.

The worldwide supervisory bodies are known to regulate FX by setting different standards that every broker under their jurisdiction should comply with. The standards include being licensed and registered with the regulatory bodies, communicating specific changes of services directly to clients, undergoing audits regularly, and more. It helps ensure that the Forex trading is fair and ethical and the money involved is safe and secure. 

How to trade in the forex market? 

Now that you are familiar with the Forex market and Forex trading, let’s have a look at how you can trade in the Forex market. To make a trade in the forex market, you need to: 

  1. Choose a currency pair: When you trade Forex, you exchange the value of a currency for another. You will buy a currency while you sell another simultaneously. Due to this, you will have to trade currencies in pairs always. New traders generally begin by trading-in the most common currency pairs. 
  2. Evaluate the Market: Next, you have to research and evaluate the market. This is the foundation step of a trading endeavor. When you begin researching, you will get lots of Forex resources. Though it may be overwhelming at first, you will soon find valuable resources when you start researching a specific currency pair. You should look at the historical and current charts regularly, check indicators, monitor the latest news for new economic announcements, and do other fundamental and technical analysis. 
  3. Review the Quote: You will see two prices shown for a currency pair. The first price is usually the selling price of the currency pairs and the second one is the buying price. The difference between both of them is known as the spread. Spread is the amount a dealer charges to make a trade. It varies from one dealer to another.
  4. Select your position: Forex trading is different from stock or options trading. Since you’re buying a currency while selling the other one simultaneously, you can easily speculate on both upward and downward movements.

How to buy and sell currencies in the forex market? 

Let’s see an example of how to buy and sell currencies using the currency pair of EUR/USD. Let’s imagine that you want to buy EUR/USD pairs. If EUR rises in value compared to USD after a trade is sold out, you may make a profit. In this example, a trader would buy the EUR and sell the USD simultaneously. Let’s suppose that you purchased the EUR/USD at 11300, and it moved to 11504 when the trade was exited or closed, then the profit made was 204 pips.

Conclusion

The currency market works similarly to the other markets that trade assets like bonds, commodities, and stocks. The way you select to trade in the market determines whether you will make a profit or not. Understanding the big Forex market and succeeding at forex trading online is an attainable goal if you educate yourself properly and keep learning. Practice forex trading on a demo account first using Best Forex Signal Provider, then start small using real money.

Marjorie Glover
About author

Marjorie Glover is a news editor and writer with a special interest in business and finance. She holds graduate degree in journalism and working as a news writer for FinanceKnown. In her spare time, She usually roaming around with friends.
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