Buying and selling in the market are known as trading while exchanging foreign currencies in Forex Exchange market is known as Forex Trading. The forex market is the largest market globally, and trade execution in the forex market directly affects the price of clothes imported from China to the amount you pay for in Mexico.

Brief about Forex Trading:

In simple words, “Forex trading is quite similar to exchanging currency while travelling abroad. Traders buy one currency and sell it another with the current exchange rate, and the exchange rate fluctuates on supply and demand. If supply is lower and demand is higher, the exchange rate would be higher and vice versa. One can trade currency in the foreign exchange market. The marketplace is open 24 hours a day, from Monday to Friday. All forex trading are made over the counter (OTC), which means there is no physical exchange. Most trade activities happen between institutional traders like people who work for banks, multinational corporations, and others. These traders do not intend to take physical possession of the currency themselves but maybe speculate future exchange rate fluctuations. Let us understand with an example. For example, today, the US dollar is priced at Rs 70.85 – you buy more dollars if you expect the dollar to move against the rupee. Conversely, you will buy the rupee if you expect the dollar to fall against the rupee. It would be best to always choose a pair of currencies, for example, Rupee/Dollar.

How are currencies traded?

All the currencies are assigned in a three-letter code and are available in a pair. USD is considered as one of the strongest currencies; that’s why you may see USD in all the possible pairs. Currency trading is available in the combination of two currencies. For example EUR/ USD and GBP/ USD.

How is Forex Trading quoted?

If you are going to trade in the forex market, first, you should understand it in detail. We will understand with an example, suppose you are interested in EUR/ USD currency pair.

.The currency on the left side (EUR) is the base currency.  .The currency on the right side (USD) is the quote currency.

The exchange rate specifies how much quote currency is needed to buy one unit of the base currency. As a result, the base currency is always expressed in one unit, while quote currency varies on the current market rate. If EUR/USD exchange rate is 1.2, which means you have to spend $1.20 to buy 1 EUR When the exchange rate rises, it specifies that the base currency has been increased in value and the exchange rate is lower, which means the base currency has fallen in its value.

Various ways to trade Forex:

Most forex traders are not made to serve the exchange currency purpose but rather to speculate the future price fluctuation, much like the stock market. Most traders buy currency because they think currency value will rise relative to the other currencies.  So purpose could be different in different scenarios There are three ways to trade Forex to accommodate varying goals

Spot market:

The primary forex market is where all the currency pairs are swapped, and exchange rates are determined in a real-time scenario based on supply and demand.

Forward market:

In forward market trading, traders contract with other traders and lock the exchange rate upon the currency amount on a futuristic date./

Future market:

In the future market, traders opt for any standardized contract to buy and sell a predetermined amount of the currency on a specific exchange rate at the future date, but it is done privately. Some general forex trading terms:

Forex Terms to know:

Every market has its own terminology. So these words should know before entering the forex market.

Currency pair:

All forex trading involves currency pairs, and the pair is in the form of base currency and quote currency.

Pip:

One Lot means 1000 Units, and at least 1 Lot has to be made as a Minimum Purchase; if you want to buy more than 1 Lot, you can buy in times of 1. For example, if you're going to buy 1000 dollars, then you will buy one lot of USD / INR because there are 1000 dollars in 1 lot, and to buy 2000 dollars, you have to buy two lots. Leverage: Many of the traders are not able to execute trade due to the larger lot size. Leverage is another form of borrowing money that allows traders to participate in forex trading without amount. Margin: Trading with leverage is not free; traders have to deposit money against the trade that is known as margin. Bid-ask spread: Like other assets, exchange rates are determined by the highest amount that buyers are willing to pay for currency pairs, the minimum amount that the seller is required to sell and the difference between those amounts and value trade executed actually is known as the bid-ask spread. Who is responsible for moving the forex market? Though currency price depends on the supply and demand, there are some other micro factors responsible for fluctuating currency market: interest rate, banking policy (Central Bank), other economic growth indicators, and political steps in the country. The risk associated with Forex Trading Two terms, leverage and margin, play a pivotal role in forex trading. Currency price constantly fluctuates but in a very small amount, so traders need to execute a trade in a broader way to make money. Leverage could be great if the trader places it in winning bets, and it can increase the profit, but on the other hand, it can also increase the loss if it exceeds the initial amount you borrowed. In such a scenario, traders have to open margin calls that force them to sell all the security purchases and the borrowed funds at a loss. I hope you will have some idea about forex trading. To earn profit in forex trading, first learn all the terminology, tips and tricks and understand the Forex Market movement, then only jump in the forex market. For forex trading training, you can register yourself at www.aboota.io to learn forex trading training courses from scratch.