What exactly is forex trading?


Trading in foreign exchange is the buying and selling of two currencies, or money denominations of two countries.

Forex trading is based on the difference in the value of the two currencies (currency pair) and how they increase or decrease in value in relation to each other

What are the elements of a foreign exchange (Fx) market?

Make sure you understand that the foreign exchange market does not determine the values of the currencies in the currency pair, it only sets the current market price of one currency compared to another.

  • Two currencies – a trade depends on the movement of two currencies in relation to each other;
  • A market – a global decentralized market, open from Sunday evening (Monday morning in Asia) to Friday night (in the USA). The main participants in the Fx market are the larger international banks;
  • Two Fx traders – a buyer and a seller, usually the bank (also known as the wholesale market) and the client or trader (known as the retail market)

Participants in the Fx market:

Anyone can trade fx anywhere

  • The interbank;
  • A client;
  • Individuals, commercial and investment firms – importers, exporters, tourists and portfolio investors;
  • Speculators and arbitragers – the people we have in mind when we talk about trading Fx;
  • Central banks and Treasuries;
  • Foreign exchange brokers.

How a forex trade works

Make sure you have a good understanding of the fact that a Fx trade involves selling one currency while simultaneously buying another.

Here is a good explanation of all the elements of an Fx trade through a broker.The six major currencies that are traded on the forex markets of the world are:

  • US Dollar (USD)
  • Japanese Yen (JPY)
  • Great British Pound (GBP)
  • European Euro (EUR)
  • Australian Dallar (AUD)
  • Swiss Franc (CHF)

A currency that goes up, results in the pair currency going down

The 8 most tradable currencies are:

  • USD – Dollar
  • EUR – Euro
  • JPY – Yen
  • AUD – Australian Dollar
  • CAD – Canadian Dollar or Loonie
  • CHF – Swiss Franc or Swissie
  • CNY – Chinese yuan
  • GBP – Pound Sterling

The complete currency list is here.

Read more background info about the world foreign exchange market.

Want to do a quick introductory forex tutorial?

A good step-by-step article on how to get started in Fx trading

Trading and gambling – one gambler-trader’s view

Something wrong or something I should add? Drop me a mail

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