I am sure you have heard the term and just nodded politely in conversation wondering what the your friends were talking about. Here we will break down Forex trading into some simple terms so you can now jump into that conversation. Simply put Forex is the nickname given for foreign currency trading, or it is called the currency market or FX. It is the biggest fashion of exchange on the planet, trading up to $4 trillion, it is the notion that is free to anyone from major institutions to individual investors which makes it so noteworthy.
The purpose of forex trading is an easy one. Like any other type of speculation you want to buy a currency at one price and then sell it at a higher price so that you make a profit, it would be known as a gain. Currencies are classified into pairs to allow easier trading and to show the exchange rate for the two currencies which is the value of the first currency compared to the second one. Some major currency pairs are the following: USD/AUD or EUR/GBP. But it really is feasible to trade any currency on the Forex market like for example Nigerian Naira(NGN) or even Croatian Kuna(HRK) but you have to watch out for minor currencies because as their trades are less frequent consequently the spread can be much wider.
The most common pairs are often broken down into three groups which come from their popularity and liquidity: majors, minors and exotics. The majors are the currencies with the most trading volume and liquid. The minors are currencies that are not traded as often so therefore their price fluctuates heavily. Exotics are currencies that are very rarely traded so they tend to be expensive to trade with wide spreads due to their pairs being rarely traded.
Forex spread trading
Like any trade market, the forex spread is the price that you buy at compared to the price that you sell at. When purchasing, the spread is always determined by the price for acquiring the first currency of the major pair with the second. So when you buy you are speculating that the price of the first currency is going to lift against the second currency and that way you can sell at a profit. It is the changes between the two currencies that a trader looks for to make his profit, you are speculating on the future direction of the market.
Well this is all rocket science to me?
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