What is Forex and the Forex market?

FOREX or FX is also known as the Forex market and is the largest financial market on the planet, with the highest liquidity in the world, due to the volume of commercial movements which amount to more than 5 billion dollars. A key factor Forex trading is that it is open 24 hours a day and any trader can invest from anywhere on the planet. Learn more about the opportunities that this interesting market offers and   why it should operate in Forex .

Currency pairs

There are hundreds of currencies or currencies in the world and each one of them is represented by 3 letters, for example the US dollar is represented as USD, the Euro as EUR, the Swiss Franc CHF, the British GBP.

Basically currencies are divided into 2 main groups: Major and Minor Foreign Currencies, the largest correspond to the most powerful economies in the world such as: United States of America, United Kingdom, European Union, Canada, Australia, Switzerland, Japan and New Zealand . And this is how, together with other currencies, currency pairs are created as shown in the following image:

popular currencies

One good for another, say money for milk. The same is done in Forex or Forex trading – one currency is bought or sold for another. The currency pairs compete against each other for example the value of the Euro against the Dollar EUR / USD.

There are 3 types of currency pairs:

  • Major Currencies: This type of pair always includes the USD dollar and the most traded currencies. The most important currency pairs are: EUR / USD, USD / JPY, GBP / USD, USD / CHF, AUD / USD and NZD / USD
  • Minor Currency: This type of currency includes major currencies except the USD, such as EUR / GBP or CHF / JPY, among others.
  • Exotic Currency: These currency pairs are composed of a major and an exotic currency, such as: USD / MXN

Advantages of Forex

What are the advantages of trading Forex? Below are some positive aspects:

  • Liquidity:  With the nearly 5 billion dollars that are traded daily, the currency market has the highest liquidity in the world.
  • Dynamic and decentralized:  The foreign exchange market is a dynamic and decentralized market, that is why any trader can invest from any corner of the planet and, thus, influence the trend of the price of a pair.
  • 24/5 Hours:  A key factor that determines the characteristics of Forex trading are the hours at which it is operated; The forex market is open 24 hours a day, five days a week, and that makes it very interesting to many traders.

Forex market opportunities

Basically, as Forex transactions are something immediate, what affects the price of currencies is the law of supply and demand and, therefore, speculation.

Likewise, the stability and the political and economic events, as well as the monetary policy of the countries, are some of the defining elements of the contributions.

  • Actions of private and public economic agents. The financial bodies, governments and central banks of each country can directly affect the price of a currency with certain economic measures and announcements. For example, a rate hike by the Fed (the US Federal Reserve) would make the value of the American currency increase.
  • Political, social and economic events. If the actors in Forex believe that due to a certain social, political, economic or natural event a currency will be strengthened or weakened, the market price will change with its operations, as the supply and demand of the relevant currency change, the more People believe that a certain trend will be followed, the greater effect it will have on market prices, since they will reflect the market sentiment. Major recent events such as the Brexit or the US elections. they directly and immediately affected the value of the currencies.
  • Reports of economic and social organizations. The analysis of debts with the IMF, the large loans from the EU or the health of the industry of a certain country (especially the big powers), as well as the data on unemployment and inflation, always offer some insight into what that can happen in the markets and in the economy, for that reason, they also have a lot of importance on Forex quotes.

What do I do when I trade in forex?

In Forex trading with currency pairs ( currencies ). When looking at the EUR / USD exchange rate, you can see how many USD (quoted or secondary currency) you need to buy 1 EUR (base currency). Below is a simple example:

When traveling abroad it is necessary to change the money of the country of residence for money of the country to which you are going to visit. Imagine that you live in Europe, and have chosen to go on vacation to the United States, say that you will exchange 500 euros to dollars, to a quota or exchange rate of $ 1.45 for each euro, as a result you will get 750 dollars, Now imagine that for some reason the money is not spent, so you still have that $ 750 when you return to Europe, meanwhile, the exchange rate had a variation of $ 1.45 to $ 1.35 per euro, so now instead of getting 500 euros will have 537.03 euros, this yields a profit of 37.03 euros for having kept the money in dollars for a certain time, while the exchange rate of the currency changed,

Therefore, if the exchange rate increases, it means that the base currency is strengthening at the expense of the secondary currency. If the exchange rate falls, it would mean the opposite.

Why operate Forex in AvaTrade?

  1. When you operate in Forex you must be able to do it safely . No company can promise you profits, but in AvaTrade we are committed to establishing values ​​that define the relationship with our customers.
  2. Therefore, we want to provide you with the best possible trading training for beginners and experienced traders , offering exceptional multilingual customer service , 24/5, which goes hand in hand with the most advanced and intuitive trading platforms such as MetaTrader4.
  3. At AvaTrade we are committed to constantly innovate for you. Open an online trading account or Forex demo and join our firm to obtain the best trading experience.