Can you explain forex trading to a novice?
What are the basics?
Forex trading is the buying and selling of foreign exchange on the open market.
The basis or reason for forex trading is trade between countries or companies in different countries. When countries (or companies) buy from, or sell to, each other, they need to convert the payment into the currency of the country to which the money flow.
This conversion creates a market for currency, and a spin-off of that market is that non-commercial traders can speculate in currencies. That speculation is what amateur traders trade in.
Forex is traded in pairs which means you trade the movement in value of the money unit of two countries against each other..(Electronic money, such as Bitcoin, is excluded from this explanation for now)
In EURUSD you trade the movement in value between the Euro and the US dollar.
You trade by placing a “directional” order i.e. you buy or sell a currency.
Because forex is traded in pairs, buying the base currency (EUR) automatically means a sell of the quote currency (USD) and vice versa.
Trading in forex takes place through a registered broker.
You can trade a higher value than the money in your broker’s account by using leverage.