Forex Trading Basics
Forex for beginners starts with understanding the concepts of trading and simple terminology. Grasping the most basic concepts and terms sets the foundation to learn more about the intricacies of the market along with the more advanced concepts and theories.
So, what is forex trading, really? The answers are simple – and complex. Here, we will go over the basics so that you, the reader, can decide if you wish to learn more. The basic concept behind the foreign exchange (or forex) market is for trading currencies, one pair against another. It’s the world’s largest market, consisting of almost $2 trillion in daily volume and is growing rapidly.
How the Value of a Currency is Determined
The value of one currency is determined by its comparison to another currency via the exchange rate. The major currencies traded most often in the foreign exchange market are the euro (EUR), United States dollar (USD), Japanese yen (JPY), British pound (GBP) and the Swiss franc (CHF). These combine to form the most commonly traded currency pairs:
The first currency of a currency pair is the base currency; the second currency in the pair is the counter currency. One can think of currency pairs as a single unit. When buying a currency pair, the base currency is being bought, while the counter currency is being sold. The opposite is true when selling a currency pair.
Foreign currency trading is conducted without a central exchange, but instead is traded over-the-counter (OTC). Unlike other markets, this decentralization allows traders to choose from a large number of different dealers or brokers with which to place trades. This also provides the means to compare prices and pip spreads before buying or selling.
A number of tools and charts are used in forex currency trading and the educated trader uses these tools extensively to perform accurate analysis to determine whether to buy or sell a given currency pair.
The forex market is operated in Europe, Asia and the United States in overlapping shifts, so currencies are constantly traded 24 hours a day. No single entity has the capability of influencing the market – at least not for very long. With the forex market coming to the forefront of the public consciousness and the tools and education being offered – some at little or no cost – placing a forex currency trade can be as easy as buying online.