A Introduction to Forex

 

 

Forex stands for Foreign Exchange Market and it is the largest financial market in the world. The volume of trade in this market is over 5.3 trillion dollars a day. This is about a third of the annual GDP (Gross Domestic Product) of the European Union.

Trading in Forex means buying and selling foreign currency. This is done through a dealer or broker. Think of it as having shares on another country’s economy. The price of that currency reflects the financial market’s impression of the country’s current economy and its behaviour in the future.

How does it work?

In Forex, currency is traded in pairs. The first currency in the pair is called the “base” currency and the second one is the “quote” currency. The price of a pair will be the value of the base currency in terms of the quote currency. To illustrate, the most traded pair is EUR/USD – EUR being the base currency and USD the quote currency. If the price of EUR/USD is 1.23, this means that one Euro equals 1.23 US dollars. If the value of the Euro appreciates in the future, then the price of the pair will increase. If the Euro depreciates, the contrary will happen. Depending on how you feel the base currency will behave, you can buy or sell the pair.

Which currencies can be traded?

There are almost as many currencies to trade as countries (or economic areas like the EU) in the world. The most popular ones are in the following table. We also include their nicknames so you can refer to them like a pro.

Code Currency Country / Economic Area Nickname when paired with USD
USD United States Dollar United States Buck
EUR Euro European Union (Eurozone) Fiber
JPY Yen Japan Yen
GBP Pound United Kingdom Cable
CHF Swiss Franc Switzerland Swissy

 

Another important characteristic of Forex is its decentralisation. The trading doesn’t have a physical location and is considered as “Over the counter”. This means that transactions are carried oot electronically in a gigantic worldwide banking network.

It also operates 24 hours a day from Monday to Friday. You can trade anytime. The opening and closing times of the main financial centres will let you do just that. Following the sun, it starts early on in Wellington, New Zealand. Then it goes on to the Asian markets mainly in Tokyo and Singapore, later on it moves to London before closing on Friday night in New York.

Back in the ‘90s only investors with a minimum of 10 million dollars could access the Forex market. Now, you can access Forex trading through online Forex companies that offer to start you off with a much smaller amount. The minimum initial deposit that most Forex brokers accept is AUD 100 and opening an account only takes five minutes.

To open an account with Vantage FX simply go to the home page and click open an account. Fill in your details, it should only take a few minutes.

About the author:

. Follow him on Twitter / Facebook.

Leave a Reply