Forex trading how-to gives information about the basics in the market that every fx trader (or intending traders) should know about. You might have heard so much about market without depth, and you want to find out more probably to help you establish a career in the market; that is a wise decision. This article is focused on what you should know about the market as a beginner.
WHAT IS FOREX?
The first thing you should know is what fx market is all about proper. Fx is a short form for foreign exchange; it is a market where traders buy and sell currencies with money. It is the largest market in the whole wide world and it accounts for over 3 trillion dollars on a daily basis. It has the highest liquidity too. Liquidity means a high volume of trading activities at every point in time; there are traders willing to buy or sell one currency or the other.
THE TECHNIQUE BEHIND THE FOREX MARKET
It is not wrong to say that the market is meant purely for trading currencies in exchange for another, but that is not all you need to trade the market. For instance, how can you buy a currency (which is money) with another currency (which is money too)? To understand this better, you need to understand currency quotes.
In the fx market, currencies are quoted in pairs in order to define a trade. Examples of currency pairs are US dollar/Japanese Yen, Euro/US dollar, etc. Quoting this currency pair gives a trader, who either wants to buy or sell, an idea of what currency is for sell and what currency is accepted for it. The first currency in a currency pair quote is known as the “base currency”, and the second currency is known as the “quote currency”.
The base currency, also known as the “transaction currency”, is the commodity for sale. For instance, in the currency quote Canadian dollar/US dollar, CAD is the currency or commodity for sell.
The quote currency, also known as the “foreign currency”, is the currency that can be accepted in exchange for the commodity/currency for sale. In trade defined by the currency pair quote Canadian dollar/US dollar, you can pay only US dollar in exchange for CAD.
- Short term trader or day trader
- Long term traders
Also, the fx market can be traded by anyone from any part of the world, irrespective of currency. This means that a trader whose native currency is not in US dollar or Canadian dollar can participate in a trade.