Forex trading looks simple, but involves serious risks. Understand the basics and find out if this is the right way for you. Click to expand...



Forex trading

WHAT IS FOREX TRADING?

Forex trading

UNDERSTANDING THE FOREX MARKET

everybody has an opinion on where the currencies are going,

forex market for the first sight it is relatively easy to understand compared to other markets, like the stock market,

by using leverage, a trader can easily trade with 100 times more than he/she has on the trading account,

the market is open 24 hours a day, 5 days a week,

it is the most liquid market in the world, meaning it has tons of transactions every second and you do not need to worry about not finding a partner to trade with.

Forex trading means buying and selling currencies on a market. Forex, FX, foreign exchange and currency market are all synonims and they are used interchangeably. On such markets you can not only sell but also bet on the price movement of currency pairs.The forex market has several outlets, from the currency exchange store on the street till the currency trading desk of big banks.The vast majority of the currency transactions are conducted on OTC (over-the-counter) markets. An OTC market is a non-regulated market. On a non-regulated market, you have to assess for yourself how safe your counterparty is. For example, when you travel abroad to an exotic country and you need to exchange some money, you usually go to a bank office instead of changing money on the street. This is how you minimize your counterparty risk. You have to do the same risk minimization when you select your online broker for trading forex. You better go with a reliable one.So you better start off slow, learn and open a demo account first. If you want to study more, check out our blog post about the best trading apps for learning.The forex market is open from 11:00 PM Sunday until 11:00 PM Friday, London time.The highest trading activity within each day is when London and New York are open.Forex trading: Forex market trading hours explainedThe end result of a conversion is basically changing one currency to another. Imagine you receive your salary in euro, but you spend it in GBP. In this case, you exchange the euros to pounds. At the beginning of the transaction you had euro and at the end, you will have pounds.When you trade with currency pairs there is no physical conversion happening. Imagine you have an online broker account in US dollars and you want to bet on the price movements of the EURUSD. In this case, you effectively never convert your dollars to euro. If your bet was correct, the profit of your trade will be booked into your account in US dollars. If you were wrong, the loss will be deducted from your account in dollars as well.