Forex trading: definitions and tools

Forex trading: definitions and tools

Forex trading is the decentralised market in which currencies are negotiated, whose purpose is to facilitate the financial flow derived from international trading. This market is the largest and most liquid commercial market in the world, with daily trading that exceeds joint trading of all the bond and stock markets of the world, for more than 5.4 trillion dollars a day.

To understand what this volume of business means, it is what the New York Stock Exchange (the largest in the world) moves in a whole stock market. As in the stock market, you can change the currency based on what you think is worth (or where it’s headed). The big difference with the Forex is that you can trade up or down with the same ease. Let’s find out a little more about trading and forex.

Facts about Trading and Forex

Forex trading is, in simple words, the act of trading money. The currencies are traded through a broker or dealer in pairs, for example, euro and US dollar: (pair EUR/USD). Don’t get confused by the fact that you won’t buy or sell any physical money. Think of buying foreign currency as the purchase of a share in a country’s economy. You will be exchanging your money for another currency, based on that country’s economic activities and strength.

In Forex, the price of a currency pair is determined based on the country’s economy against the nation of the other currency.  Unlike other financial markets, the Forex market is decentralized and does not have a physical location. The Forex market is considered OTC (over-the-counter) market, because this market works electronically, in a network between banks 24 hours a day.

If you think that a coin will increase the value, you can buy it, if you think it will decrease the cost you can sell it. With such a large market, you will find a buyer when you are selling and a seller when you are buying, it is much easier than in other trading markets. Maybe you hear on the news that China is devaluing its currency to attract more foreign businesses to its country.

Forex trading tools

As with stocks, you can trade currencies based on your opinions about their values (or the prices you think the coins will have in the future). However, what sets Forex apart is that you can trade in both bullish and bearish trends. If you predict that a currency will increase, you can buy it. If you think your price will fall, you can sell it. Also, since Forex is so vast, finding buyers and sellers is much more comfortable than in other markets subject to liquidity.

If the price quotes are up to hundredths, how can you make significant profits by investing in Forex trading? The answer is leverage. To use leverage, you just have to set aside the margin required for the size of the operation. For example, if you apply a 50: 1 leverage, you can trade with $1000 by setting aside a margin of only $ 20 in your trading account. That gives you a much more significant exposure to a low investment.


Author: Editorial staff of 70 trades reviews blog

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