The Basics of the Forex Market

The Basics of the Forex Market

Currencies exchange, which is also known by many names that include the foreign exchange market, forex market or simply the FX market, is one of the busiest and most active financial markets on the planet.

The Forex market is where the global commercial and investment flows meet and intersect. The very origins of the market can be traced back to when different countries began to interact economically and have to contend with different currencies of different values relative to each other.

This market is one of the most active in the world, it is open six days a week and billions of dollars are traded in each and every day. The movement of the Forex market is fast and furious. Traders should be able to act on news and events as it happens to take advantage of the sudden dips and rises in currency value.

Every single one of us participate in the Forex market whenever we travel overseas or when we exchange one currency for another. But for people who want to take advantage of currency value fluctuations, trading in currencies can potentially be a lucrative endeavor. Even though the market is huge and large sums of money exchange hands in the blink of an eye, the very concepts that come into play in this market are quite simple.

Here are some basic concepts that you should know about the Forex market.

The major traded currencies

Although you can technically trade in practically all kinds of currencies, there are only eight major economies that you should study and these are what will help you determine which provides the best opportunities for you to earn.

The economies of these eight countries comprise the bulk of trade that happens in the currency market:
• The United States of America
• The so-called Eurozone (Germany, France, Italy and Spain)
• Japan
• The United Kingdom
• Switzerland
• Canada
• Australia
• New Zealand

Focusing your attention on the economic movements in these six countries and two regions (the UK and Eurozone) will give you a general picture of currency movements and be able to pinpoint earning opportunities. These countries release economic data almost every day, which also helps in identifying the investing potential of certain currencies over others.

Buying and selling

In the foreign exchange spot market, you should remember that you are basically buying and selling two currencies. Currencies are always quoted relative to another currency – they always come in pairs. For example, if the GBP/USD pair is at 1.500 then it means that you need $1.50 to buy one British Pound.

It should be stressed that aside from the buying-selling process, currencies also have an interest rate that is set by that country’s central bank. When trading currencies, you are required to pay that interest rate but you also have the chance of earning interest on the currency you have purchased.

Leverage

Leverage is one of the aspects of the Forex. While you can control more currency value with a little capital, the flipside of this is that you can also incur massive losses if your buying or selling decision proves to be wrong. Leverage should thus be used conscientiously or you may burn through your investment faster than you can snap your fingers.

You can do it on your own

The internet has democratized the way people get involved with trading markets. You can now trade currencies on your own from the comfort of your own home. There are many online services that offer currency trading using different trading platforms. These are safe services that are also regulated so you don’t need to worry.

The good thing about these services is that it also offers free economic data analysis and also recommendations for which currencies to watch out for.

These online trading services have made currency trading accessible for everyone, and also opens up the opportunities to earn from currency trading to anyone who has the analytical mind and the dedication to look at the numbers and make educated decisions.