What Is Forex
An Introduction to Forex!
WHAT IS FOREX? - FOREX is a short form of the term foreign exchange wherein the traders trade between two different currencies of two different nations. In other words, one currency is exchanged for another. In simpler terms, a trader sells one currency to buy another. The aim of the trader is to profit from the fluctuations in the currencies. To understand this better, consider if one Euro was equal to $1.0857 as on today. If a trader bought 1000 Euros today, he would have to pay $1085.7 for the same. Now, imagine if a year later, one Euro valued $1.2083. This would imply that the trader could then sell his 1000 Euros and make $1208.30. This is a flat profit of $122.60. This is how traders trade in forex.
The trading could be done between any two currencies. It could be between dollar and euro, euro and yen and so on. It entirely depends on the trader to buy one currency against the other. However, the selection of currencies is very important to ensure good profit or even any profit at all.
Forex trading works on the simple principle of exchange rate. The exchange rate is nothing but the value of one currency as against the other. A trader needs to understand the business dynamics very well to ensure that he makes the most. Expert traders tend to evaluate their profits and compare it to the profits that they could have made if they had selected different currencies for trading. With time, a trader understands the right approach to do this trading.
As a smart trader, you must look to buy a currency that is expected to increase in the value against the currency you sell. The more the fluctuation (positive fluctuation) in the value between the two currencies, the more profit you make. If the currency you bought does not increase in the value, you must look to sell the other currency to lock in a profit. As long as you have not sold or bought back the equivalent amount, you are said to be in an open position or open trade.
The forex trading may be done directly by the trader or via a broker. The broker in this case gets paid some amount of the brokerage. As a trader, you must be red alert on the exchange market conditions, as the conditions can change at about any time. This implies that you must hire a broker if you do not have the time or inclination to keep a close check at the market. The broker would keep you informed of the market conditions at all times, and would only make any move after you give the instructions.
Some of the key features of forex trading are mentioned below:
- Trading can be done 24 hours and five days a week
- Trading can be done with any currency.
- There are multiple options for zero commission trading.
- Profit can be earned in both rising and falling markets.
- There are many instruments to control risk exposure.
- Many volatile markets offer profit making opportunities