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What is forex trading?

By Jamie Richardson | November 7, 2023
Financial investments have always been an appealing niche for everyone who wants to make their money work. There are plenty of options to choose from, yet the leading position has long been occupied by Forex Market, as it is the most approachable financial market for beginners.
Forex market gives access to a global market of currencies with relatively small initial funding, which lets everyone join in and make a profit. Let’s explore the basics you need to know to become a part of a global forex market. 

What Is the Forex Market?

Forex market is a global financial marketplace where traders make a profit by anticipating the cost of currencies against each other. 

Forex is a short word for forex exchange, which occurs due to commercial or tourism reasons. Forex is used by banks, businesses, hedge funds, investment businesses, and retail traders. Forex trade has a long history, however, it was only accessible to certain businesses and financial institutions. Nowadays, with global Internet access, everyone can learn to trade, provided they have a decent level of knowledge and awareness about world affairs.

The forex market is the largest of all the financial markets existing nowadays. Its daily turnover reaches around $7 trillion US dollars, with the tendency to further growth. 

One of the most important features of the forex market is its independence, as there is no central location or a marketplace, and all the operations are performed through the networks. 

What Is a Forex Broker?

A forex broker is an online intermediary that allows retail traders to access trading platforms and speculate on currency fluctuations. The majority of online brokers offer their clients quite alluring welcoming bonuses, like $30 no deposit bonus, to allow them to make the first trading steps risk-free; the leverage, which allows them to trade big even when the starting capital is small; demo accounts, to have a little practice before signing up for a particular broker, etc. 

What Is the Basis of Forex Trade?

Forex trade is based on currencies and their behavior on a global scale. The basic element of forex trade is a currency pair which consists of the base currency and the quote currency.  The quote currency shows the price to pay per unit of a basic currency. The profit is made when the trader anticipates correctly the movement of the price for the currency pair.  

The currency pairs are different, depending on their ‘strength’. There are three types to consider:

  • The majors, where the currency price is bid against the US dollar. Among the majors, there are the US dollar (USD), Euro (EUR), British Pound (GBP), Japanese Yen (JPY), Swiss Franc (CHF), Canadian Dollar (CAD), Australian and New Zealand Dollar (AUD), (NZD). 
  • The minors, where there are two majors, yet without US dollars. 
  • The exotics, where the low-rate currencies are placed against the majors. 

How to Trade Forex?

The success of the trade depends on the ability to analyze the financial market, its movements, and tendencies. There are three major types of analysis to use:

  1. Fundamental analysis

Fundamental analysis includes a global outlook on the world market. It helps to understand the reason why the currencies change their movement in either way. Fundamental analysis requires insight into the economic, political, and social factors, as they create the basis for any kind of currency movement. It is critical to be aware of the current news and economic data and learn the central bank and government policies. 

Although the forex market never sleeps and offers relative flexibility with the time of trades, it requires a full 24/7 immersion into global affairs. It is vital to follow the news reports, look into financial matters of the countries, and even the diplomatic relationships. Even the slightest change in a country’s comportment can cause great changes in the currency value. 

2. Technical analysis

Technical analysis is an approach based on the price actions within certain time frames and the trends on the price charts. The patterns in charts help to anticipate the further currency movement. 

3. Sentiment analysis

Market sentiment is the least scientific, yet quite feasible approach to use. It is related to the traders’ gut feeling about a particular market or trade. It helps to measure how other investors and traders feel about certain currency pairs. 

As a rule, the technical and fundamental analysis make the basis of the trading strategies, while the sentiment analysis works as an additional indicator of a successful deal. 

The Bottom Line

Forex trade is the best solution against the highly fluctuating currency market. Instead of fearing for the safety of personal funds, it is better to use them and make even more money. Forex investments are profitable, yet they require a long-term commitment and 24/7 presence. Successful trades are based on the knowledge of the financial sphere and a world-wise approach and curiosity, as they let to analyze deep into the roots of all the market movements. 

If you feel that the Forex challenge is a suitable option, don’t hesitate – register at the Forex platform and get down to practice.

Jamie is a 5-year freelance writer who enjoys real estate. He is currently a Realty Biz News Contributor.
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