What is Forex Trading and How Does it Work ?

Forex trading is a combination of two words: Forex and Trading. What is Forex? Also commonly referred to as FX, this means Foreign Exchange. Trading in its traditional form still remains exchange of a commodity. The commodity in question here is “currency”.

Putting all this together: Forex trading is simply the exchange of two foreign currency in a market referred to as the Forex Market. Currency trading is the most liquid and largest market in the world. The forex market is a decentralized international market where the world’s currencies are traded.

How Does Foreign Exchange Trading Work

what is forex trading and how does it workBeing an exchange of two currencies means anyone who has ever made a trip from one country to another or made engaged in purchase of goods within the importation and exportation exchange platforms of between countries and their currencies has engaged in Forex trading.

There has to be two currencies, one selling and the other buying at the same time. The need to exchange currencies for trade across borders is what fuels the Forex trading market, making it the most liquid and largest in the world. It operates at well over 4 trillion dollars worth of transactions daily.

Open 24hours

The uniqueness of this international market is that there is no specific location for it but simply conducted via online electronic transfers and exchange. Meaning when the market closes in country as normal work time ends, it opens in another country as normal work day begins, except on weekends. Meaning it runs from Monday to Fridays only. The currencies are purchased at varying rates influenced by world politics. Each country’s fiscal policies and internal or regional developments affect the rates at which each currency trades per time on the Forex Trading Market.

The stability of various countries’ economies likewise affects their popularity in the Forex Market and reflected in the frequency of exchange these currencies for trade and business. This is represented in the Forex market structures by categorizing some currency pairs as MAJOR, MINOR AND EXOTIC pairs. A currency pair is Major (EUR/USD) when it is one of the most popular for trading, the European Euro to the US dollar, Minor (USD/ISK) when it is less popular, such as the US dollar to the Icelandic Krona and Exotic (ISK/BWP) when transaction exchange between the currency type is rare, such as the Icelandic Krona to the Botswana Pula. Basically meaning the major currency pairs are the most dominant and traded currency pairs in the world.

Major Market Players

The major Forex Market currency trades occur between the following world currencies, these are: the European Euro (EUR), Australian Dollar (AUD),British Pounds (GBP), Japanese Yen (Yen), United States of America Dollar (USD), Canadian Dollar (CAD), Swiss Franc (CHF) and others.

Trading In Forex

To engage in Forex trading, you have to simply have the following characteristics at your core. You have to have to be bold at taking risks, remain calm under pressure, have a sharp mind and be able to make quick decisions.

You must be able to calculate Profit and loss and estimate values with a desired end at quickly cutting your loss with a view to knowing you will live to earn another day.

Choosing The Right Forex Trading Platform

Knowing that currency values are volatile due to the ever changing nature of world events, a Forex Market trader must carefully select the trading platform via which he will be engaging his/her transactions. A good trading platform must be managed by a forex broker with a good reputation, the platform must possess a user interface that is convenient to navigate, self explanatory and easy to use. It must pay commissions without challenges, this means you have to review its ratings and reviews to ensure it doesn’t have challenges with remitting commissions.

Likewise, it must have an expansive electronic money transfer connectivity that is secure and trusted. Payouts are important; it is the whole essence of the Forex trading transactions. It must not be cumbersome to register, such as PayPal and other similar money transfer platforms. Likewise the trading platform must possess analytical tools that are highly efficient with predictions.

To comprehensively understand how Forex trading works, it is advisable to work with a platform that allows you to practice on a demo platform before engaging in actual cash investment. Some trading platforms will allow you to emulate trade patterns of experts. Simply review what each trading platform has to offer and keeping in mind to follow world trends on economies, government policies and any regional or natural occurrences.

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