what is forex?

Foreign exchange,commonly known as forex of fx,is the exchange of one currency for another at an agreed exchange price on the over-the-counter market.forex is the worlds most traded market,with an average turnover in excess of 4 trillion usd perday.compare this amount to Newyork stock exchange,which has a daily turnover of around 50 billion usd and its easy to see how the foreign exchange market is the biggest financial market in the world.

    Essentially forex trading is the act of simultaneously buying one currency while selling another,for the purpose of speculation.Currency values rise and fall against each other due to a number of factors including economic and geopolitics.The commond goal of forex traders is to profit from these changes in the value of one currency against the other by actively speculating on which way forex prices are likely to turn in the future.

    Unlike most financial markets,forex market has no physical location of central exchange and trades 24 hours a day through a global network of businesses,banks and individuals.This means that currency prices are constantly fluctuating in value against each other, offering multiple trading opportunities.

 

Pricing

   All forex is quoted in terms of one item versus another.Each item pair has a base item and a counter item.The base item is the item on the left of the pair,and the counter item is on the right.For example,in EURUSD,EUR is the base currency and USD is the counter currency.Forex price movements are triggered by items either rising(strengthening) in value or falling(weakening) in value.If the price of the pair EURUSD was to fall this would indicate that the base currency (EUR) is weakening and the counter currency (USD) is strengthening.

   When trading forex prices,you would buy an item pair if you believed that the base item will strengthen against the counter item.Alternatively,you would sell an item pair if you believe that the base item will weaken in value against the counter item.

 

Pips

   Pip stands for percentage in points. Most of our currency pairs are quoted to 5 decimal places with the change from the 4th decimal place (0.0001) in price commonly reffered as pip. For example, if the price of EURUSD moved from 1.3380 to 1.3392 it is said that it moved 12 pips.

 

Bid

The selling price offered to the market

 

Ask

The buying price offered to the market

 

Spread

The difference in the BidAsk of the items pairs is reffered to as the spread. For example EURUSD is quoted at 1.33801.3385. The spread will be 5 pips.

 

Forex items

 

   The main items of the forex market are the currencies. We have two type of currencies:

 

1- The currencies which are valued against the US Dollar:EURUSD, GBPUSD, AUDUSD, USDJPY, USDCAD, USDCHF, NZDUSD.

 

2- The currencies which are valued against each other (crossrates):EURGBP, EURJPY, GBPJPY, AUDCAD, NZDCHF ......

 

   The other items are:metals:like gold(XAU) and silver(XAG), Indexes like S&P,NAZDAQ,DOWJONES,NIKKEI...., Stocks and oil.

 

Category: Basics