Forex Trading and Currency Pairs
Forex trading operates on the same general principles as any other type of trading in the world; items are bought and sold for a set amount, usually based on estimated future value.
The forex market also has a few defining features which sets it apart from other types of trading, for example when you trade in the forex market, some banks enable you to control and profit from significant quantities of currency without having to pay for it up front, so this is a beneficial feature to look out for.
Forex trading is concerned with trading currencies and involves predicting the strength of one of the worlds many currencies against another, and then trading accordingly.
Forex trading takes place all over the world, 24 hours a day, seven days a week. Unlike the stock market, forex trading is not controlled by a central exchange but is instead found on the interbank market, which is regarded as an over the counter (OTC) market.
With an average daily turnover of several billion, forex is the most traded market in the world. Business takes place directly between two traders, either over the telephone or via electronic networks. Trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, next to London and then to New York.
Buying and selling currency pairs is key to forex trading and you can make a profit with different forex options when currency pairs are moving higher, lower and also when moving sideways.
Currency pairs simply refer to specific currencies which are traded in pairs, such as the Euro-US Dollar (EUR/USD) or US Dollar-Japanese Yen (USD/JPY).
Most forex traders focus predominantly on the largest, most liquid currency pairs, known as “The Majors”. These include US Dollars, Japanese Yen, Euro, British Pounds, Swiss Francs, Canadian Dollars and Australian Dollars. The majority of daily forex trading takes place between the major currency pairs.
There are exotic currency pair options which include trading the US dollar against Thai baht, Danish krone and Singapore dollar, amongst others.
There are also currency crosses in forex trading, such as the British pound and Japanese yen or Euro and Canadian dollar.
To be successful in forex trading you trade your currencies in pairs to take advantage of one’s strength over another. If you believe the Euro is gaining strength compared to the U.S. dollar then it is wise to buy Euros and sell U.S. dollars at the same time. Forex trading success lies in the ability to spot the stronger currency so you can purchase it whilst simultaneously seller the weaker currency.
If you are interested in forex trading then it is helpful to know how different currencies trade, as well as the importance of margin and leverage.
Forex trading is usually conducted with relatively small margin deposits, which is beneficial as it allows investors to exploit currency exchange rate fluctuations which also tend to be small.
Ms. Ebele Kemery is a Commodities Leader with a track record of consistently profitable trading efforts and expanded business through understanding of client needs and developing customized solutions that leverage a wide variety of techniques and market intricacies, satisfy all risk management requirements.
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