Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies are traded. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion.
All the world's combined stock markets don't even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments.
The foreign exchange market, also known as the FX or Forex market, is the largest and most traded financial market in the world. The FX market has grown to a daily trade volume of over $5 trillion a day which is over 200 times bigger than the New York Stock Exchange. Historically, the major players in the FX market were large central banks, multinational firms and big financial institutions. While these organizations are still the major players in the market, the growth of online brokers and technology has made it possible for individual retail traders to access this market and trade on a level playing field with the big players.
In each Currency Pair there is a Base Currency and a Secondary one. The prices as well as the charts on a currency pair usually refer to the Base currency. Example. If you read somewhere that the EUR/USD is getting stronger, it means that the EUR is getting stronger against the USD. If you look at the EUR/USD chart, it shows an upward trend which means that the EUR is getting stronger over the USD. There are 3 categories of currency pairs: the Major currencies, the Crosses and the Exotic.
Majors are the most traded currency pairs in the Market. These pairs are listed below :
The Crosses are the currencies that are traded against each other and do not include the USD. An example of the cross currency pairs is GBP/JPY and EUR/GBP.
Exotic Currencies are the ones that are traded in very low volumes and they lack market depth. The Mexican Peso and the South African Rand are examples of the Exotic Currencies.
In every currency table you will find quotes that refer to the currency pairs. The quotes (prices) always refer to the Base currency in the pair. Bid is the selling price of the Base Currency and Ask is the buying price of the Base currency. Example: If you would like to buy 1 Euro, you would buy it at the Ask price and if you would like to sell 1 Euro, you would have to sell it at the Bid Price.
For every 1 Euro we want to sell, we will use the Bid price or the selling price, expressed in U.S. Dollars. Thus, 1 Euro to sell is worth 1.4000 USD. When opening a trade, either to buy or to sell, it is usually referred to as a position. An open position indicates that the client has positioned himself in the market. A closed position indicates that the client exited the market. A LONG position is when you are buying and a SHORT position is when you are selling a currency. When a currency is moving up, it is also referred to as Bullish; if a currency is dropping then the movement is Bearish.
The Spread is the difference between the Bid and the Ask price. The spread is the commission charged by the broker for using their services and it is measured in Pips.
The smallest movement in the price of a currency is calculated in pips. The pip is the 4th digit, after the decimal point in the price of a currency.