What is Foreign Exchange?
Foreign exchange (FX) is the world’s largest and most liquid market. Larger than the shares and futures markets combined, every day over $5.1 trillion of FX transactions are traded globally.
In addition to trading for profit – also known as speculative trading – FX can be traded to diversify investment portfolios and to hedge against currency exposures in other assets.
A 24/5, truly global market
FX trading begins on Sunday evening when New Zealand banks and institutions open for business and “follows the sun” across Asia, Europe and the Americas, and then the cycle begins again each day. The trading window in each time zone overlaps – Asia with Europe, Europe with US, US with Asia – making it possible to trade Forex 24 hours a day.
How does FX trading work?
To properly understand what is FX trading, first you’ll need to understand some basic principles. If you’ve ever been to a Bureau de Change, you’ve already traded foreign exchange. It means, simply, “exchanging” (buying or selling) one currency for another, for example, selling US Dollars to buy British Pounds or Euros.
FX trades always involve two currencies e.g. Euro and US dollar or EUR/USD, and this would be called a currency pair.
Buying and Selling Forex pairs
In FX trading, small movements can have a significant impact on the overall value of an open position. When trading FX, you will be looking to anticipate the absolute movement of a currency – in either direction – since you can either “buy” a currency pair or “sell” it.
When you are buying a currency pair you anticipate the first named currency price to go up, meaning that the first currency in the pair will strengthen against the second one and the price will rise. For example, you would want to “buy” or “go long” the EUR/USD pair when you anticipate that the Euro will strengthen against the US Dollar.
When you’re selling a currency pair you anticipate the price to go down which means that the first currency in the pair will weaken against the second one or this could be viewed equally as being that the second one will strengthen against the first one.
For example, you would want to “sell” or “go short” the GBP/USD pair if you anticipate the British Pound to weaken against the US Dollar or equally the US Dollar to strengthen against the Pound.
Why Trade Forex?
Due to the sheer size of the trading volume – $5.1 trillion traded daily – and a continuous advancement in technology, the Forex market is being accessed by more and more traders around the world. This simple access and the fact that it remains open throughout the week makes it attractive and convenient for traders of all skill levels.
Traders find the FX market appealing because:
- Largest and most liquid financial market in the world
- Open 24 hours a day, five days a week so you can trade when it suits you
- Centralized, transparent market with deep liquidity provides a better trading experience
- 60+ actively traded currency pairs providing many trading opportunities
- Simple to understand, simple to trade – thanks to advances it technology
- An ability to profit from movement in either direction (long/short selling)
- The use of leverage to maximize potential returns, while reducing the initial outlay.
Ready to start trading?
Opening an account with ADS Securities is simple and secure. You have the option to open a live account via our secure client portal or try our FREE Demo Account.