Forex trading is the conversion of one currency to another typically for commerce, trading, or tourism. The forex market is where currencies are traded, and it is the largest market in the world with a daily trading volume of $6.6 trillion.
While much of forex trading is conducted for practical purposes, the majority of foreign exchange transactions take place with the aim to earn a profit. The amount of currency converted every day can make price movements of some currencies very volatile. It is this volatility that makes forex so appealing to traders as it brings about opportunities for high profits, while also increasing the risk.
Read on to learn about online forex trading, forex markets, and how to start trading forex.
How do forex markets work?
The forex market , or FX market, is the place where currencies are traded. Currencies are traded in over-the-counter (OTC) markets. You can trade forex 24 hours a day as there is no central location. All transactions take place via computer networks around the world instead of on one centralised exchange. The forex market is run by a network of banks across the world. These banks are located in four major forex trading centres in different time zones: London, New York, Sydney and Tokyo.
How many types of forex markets are there?
There are three types.
- The spot market is the biggest forex market. It is where currencies are bought and sold based on their trading price.
- Forwards market: A forward contract is a private agreement between two parties to buy a currency at a predetermined price on a future date.
- Futures market: a contract is agreed to buy or sell a set amount of a given currency at a set price and date in the future. Futures trade on exchanges and not over-the-counter.
Base and quote currencies
The first currency listed in a forex pair is referred to as the base currency, and the second currency is referred to as the quote currency.
Online forex trading always involves selling one currency in order to buy another, which is why it is quoted in pairs. For example, a EUR/USD currency pair represents the euro versus the U.S. dollar and involves buying the Euro and selling the US dollar.
How does forex trading work?
There are different ways that you can trade forex, but it always involves simultaneously buying one currency while selling another. In the past, many forex transactions were carried out through a forex trading broker, but as online forex trading has become more popular you can use derivatives like CFDs to profit from forex price movements.
Apakah itu CFD?
A forex CFD (Contract for Difference) is a contract between two parties where one party agrees to pay the other the difference in the value of a currency pair from the time the position is opened to when it is closed.
CFDs are leveraged products. Therefore, you only need to deposit a small percentage of the full value of the trade to open a position. The initial deposit is known as the margin requirement. Trading on margin allows you to magnify your returns, but your losses will also be magnified if the market moves against you.
CFDs provide traders and investors with the opportunity to profit from price movements without owning the underlying assets. Note, that the value of a CFD contract does not consider the asset’s underlying value, only the price change between the trade entry and exit.
What moves the forex market
Like most financial markets, the forex market is primarily driven by the supply and demand of sellers and buyers. However, the forex market is also influenced by other factors such as interest rates, trade flows, tourism, economic strength and geopolitical risk. These factors affect the supply and demand for currencies, creating volatility in the forex markets.
How to trade forex
Trading platforms provide a simple and convenient way to trade forex. The best CFD forex broker will offer the best trading platform such as MetaTrader 4 (MT4) or WebTrader. The user-friendly MT4 trading platform provides quick and easy access to technical and fundamental analysis, automated trading, graphs, charts, and a lot more features to take your trading to the next level.
If you want to trade forex via CFDs, you should open an account with a leveraged trading provider and this will give you the opportunity to access one of the largest and most liquid markets across the world. You can open an account in just a few steps and start trading within minutes.
Explore forex trading opportunities with T4Trade
Are you interested in forex trading with a leader in online trading? Then explore trading opportunities with T4Trade, a globally recognised broker. Follow the steps below:
- Do your research on forex trading.
- Open an account.
- Choose the currency pair you want to trade.
- Select your trading platform.
- Open a position, monitor, and close your first trade.
Penafian: This material is for general informational & educational purposes only and should not be considered as investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.