Foreign Exchange (Forex)
Invest and be a part of the largest financial market in the world.
What is Forex (FX)?
Foreign exchange is abbreviated as Forex (FX). In foreign exchange trading, two currencies are exchanged against each other: the purchase of one currency results in the simultaneous sale of another.
Currencies are always exchanged in pairs, which is why they are also known as currency pairs. The FX trading market, the largest financial market in the world, is also known as the foreign exchange market or currency market.
How does FX trading work?
Private customers, businesses, and organizations trade or exchange various currencies all around the world in currency trading.
In forex trading, the base currency is the first currency in the pair, while the quote currency is the second. We as traders speculate on the development of exchange rates: does the exchange rate of one country’s currency rise or fall against the currency of another? We illustrate the theory with two trading instances.
Variant A: For the currency pair EURO/US-DOLLAR (EUR/USD), we assume that the EUR will appreciate against the USD.
We go LONG.
Variant B: We assume that the EUR will lose ground versus the USD in the currency pair EUR/USD.
We go SHORT.
The currency abbreviations
Currency designations in Forex trading are often made up of three letters: The first two letters usually represent the country or currency union, while the last character usually represents the respective currency sign. The following are the most well-known major and minor currencies, as well as their abbreviations:
|Abbreviation||Region & Currency|
|EUR||Euro zone & Euro|
|USD||USA & US Dollar|
|JPY||Japan & Yen|
|GBP||Great Britain & Pound|
|CHF||Switzerland & Swiss Franc|
|CAD||Canada & Canadian Dollar|
|AUD||Australia & Australian Dollar|
|NZD||New Zealand & New Zealand Dollar|
How do exchange rates emerge in foreign exchange trading?
The formation of foreign exchange rates, commonly known as FX rates or exchange rates, are extremely hard to calculate.
Some of the most crucial aspects can be summarized.
Foreign currency rates evolve and fluctuate as a result of:
1. The supply-demand ratio in the currency market
2. Economic situation: business cycle (of the respective country)
3. Inflation and deflation (price level/purchasing power development)
4. Central bank influence & central banks
5. Political and economic occurrences
The benefits of the foreign exchange market
- High liquidity
- Profit from increasing and declining prices
- Open 24/5 in continuous
- Low initial investment
- Simple to comprehend
- Long-term investment can yield large returns
The disadvantages of the foreign exchange market.
- A high level of capital risk
- Unpredictability of the market
- There is no such thing as a quick way to make money