Forex, FX, most commonly used foreign exchange market consists of foreign currency exchange, and is commonly used to describe foreign exchange trading on foreign exchange markets by investors and speculators.
Those who invest in the Forex market try to gain from currency exchange with the aim of gaining profits due to fluctuations in currency exchange rates.
Coin exchanges are called short and long. The “long” position is when the operator buys a currency in the hope of rising in value, in order to sell it later to a higher price. The “short” position is when the trader sells a currency with the objective of speculating at a later point in time by repurchasing it at a lower price.
Currency prices are always quoted in relation to another currency, i.e. in pairs, and are shown in the following ways: EUR / USD (GBP / USD), USD / JPY (Dollar / Japanese Yen) and so on. These pairs are called “majors”. The most common exchanges are those between the US dollar against the euro (EUR / USD), the pound sterling (GBP / USD), the yen (USD / JPY) and the Swiss franc (USD / CHF).
Those involved in trade are predominantly large institutions such as banks, currency speculators and multinational corporations. Small traders – called retail traders – are in a net minority in the FX market and to take part in the use of brokers or intermediaries from banks.
When you decide to do Forex Trading (e.g.: EUR / USD), you are targeting a broker (or an online trading platform) with the goal of offering two distinct prices: the selling price, called Ask and the purchase price, called Bid. The difference between these two prices is the Spread.
Brokers are the direct intermediaries to which we rely on to operate in this market: it is crucial to appraise their reliability, the speed of the process of the buy and loss orders given, the fees applied, expense charge and the ease of the payment operations withdraw from your trading account.
Online trading companies allow Forex Trading Platforms specifically designed for on-line trading. The Forex Trading Platforms online are numerous and some of them can offer a free bonus at the time of subscription, which you can directly invest.
For example, one might expect a US dollar to lose value against the euro: a trader in such a situation sells US dollars and buys euros. If the euro buys value against the dollar, the buying power of the euro against the dollar increases. The trader, therefore, can now buy dollars with his own euro, getting more dollars than the initial amount, and thus returning a profit.
This process is similar to equity trading. An equity trader will buy shares if he is convinced that they will increase in price and sell shares if they believe they will lose value in the future. Likewise, a Forex trader will buy a pair of currencies if he imagines that the exchange ratio will go up, and vice versa will sell it if he thinks it will come down.
Unlike stock exchanges, there is no clearing box where physical transactions are conducted.
In Forex, the mutual value of two currencies changes constantly.
Currencies are treated in an open market, such as shares, bonds, cars, computers, and any other good or service. A currency fluctuates depending on the demand and supply variation, like anything else.
- An increase in supply or a decrease in demand for a currency will lower its value.
- A decrease in supply or an increase in demand increases the value.
A big Forex benefit is that you can buy or sell any pair of currencies at any time, depending on the available liquidity. If, for example, you think the euro area will crumble, you can buy US dollars by selling euros (selling EUR / USD, i.e. selling EUR against, or buying, USD). If, on the assumption, gold is thought to have an increasing price, based on the historical correlation between the gold price and the Australian dollar, one can intervene by buying Australian dollars against US dollars, ie buying AUD/ USD.
This means, among other things, that there is no condition like the “bear market” in the traditional sense. You can profit (or suffer losses) both when the market rises up when it comes down