Introduction to the world of forex trading – an overview of the most important concepts related to online currency trading from forex trading.
What Makes Forex So Special?
An introduction to the world of forex trading, an overview of the most important concepts related to online forex trading.
What Makes Forex So Special?
Foreign exchange, also known as Forex, is defined as the exchange of currencies on the world market. The term currency exchange refers to the personal level when, in the event of a trip, a person exchanges a certain currency for another currency on a global level.
The foreign exchange market is considered to be the largest market containing liquidity, with a daily trading volume of $ 5.3 trillion in the foreign exchange market.
The characteristics of the foreign exchange market are different from other regular financial markets.
Customs traders buy stocks that they believe will increase in value and then sell them when they go up or down. When trading forex, traders should expect one currency to increase or decrease in value against another, known as a currency pair.
For example, if a trader trades the US dollar and the Japanese yen (USD / JPY), he must determine whether the US dollar will rise against the Japanese yen or vice versa. If the price of a currency pair is expected to rise, a buy transaction is established. However, if a decline is expected, a purchase agreement is concluded.
Currencies around the world are traded against each other at all times, the foreign exchange market is open 24 hours a day, 6 days a week. In global forex trading, it is impossible to manipulate the market. For this reason, the forex market is often referred to as “the most perfect market”.
Retail clients trade through a forex broker. These brokers act as the link between the traders and the banks that run the trades. Therefore, a trader neither buys a particular currency nor does he make a trade himself. All he has to do is determine his decision regarding the currency pair, whether it will rise or fall.
In addition, the foreign exchange market operates in a decentralized environment in which all trades are conducted electronically. Unlike the companies listed on the New York Stock Exchange, there is no specific location for trading or registering forex. The decentralized nature of Forex means that there is no one overseeing the trading process and how it works.
Interpretation of the currency pair
Forex traders are experimenting with trading a currency pair, with the first currency called the base currency and the second currency called the counter currency. The base currency is, for example, the currency pair USD / JPY, short for US dollars (USD), while the yen (JPY) is the counter currency. The price of the currency pair is included in the price list, the Japanese yen means that if the price is quoted at 106.92 US dollars, 1 dollar in JPY is 106.92.
In addition to the currency pairs, two prices are always listed. The bid price is the price at which traders buy the base currency against the secondary currency, while the ask price is the price at which traders sell the base currency against the counter currency. The difference between the bid and ask prices is known as the pips spread, which is measured in pips and represents the cost of opening a new position. For example, for the USD / JPY currency pair, if the bid rate is 106.840 and the ask rate is 106.855, the cost of opening a position on that pair is 015 pips.
Trading the borrowed amount of money to buy a financial bond “margin” and money management
The margin requirement is the minimum amount required to open a position in a trading account. The value of currency pairs in Forex is calculated in points, the value of which is equal to one part of a hundred. Traders can increase the value of their accounts to amounts in excess of the required margin amount. The leverage is between 100: 1, which means that a trader can trade up to $ 100 for every dollar in their account. The value is up to 400: 1, which means that a trader can trade up to $ 400 for every dollar in their account.
Leverage has both advantages and disadvantages. If you choose 100: 1 leverage, you can enter positions of up to $ 100,000 in an account as low as $ 1,000. This means that each point is 100 times its true value. This may or may not be in the interests of the trader, as the value of profits or losses increases as the value of the deal increases. Leverage can lead to rapid fluctuations in account margins, so the trader must choose an appropriate strategy to manageconsideration of his money. Making the right leverage decisions will ensure a trader’s long-term survival in the forex market.
Rollover and trading in interest rates
An effective mastery of the term rollover leads to its application to what is known as interest rate spread trading, which is an excellent way to add value to your trading range.
All trades in the Forex market are settled at 5:00 p.m. Eastern Time at the end of the trading period. Traders can take profit, rollover, or trade “next day”. This is done by simultaneously opening or closing trading transactions according to the value listed in the market regulations on the “new day”. When the trading process is complete, the funds of the currency pairs will be paid or withdrawn from the trader depending on the status of the transaction, whether it is a purchase or a sale.