Forex trading means the conversion (buying or selling) of one currency for another. For example, you are selling US Dollars to buy British Pounds or Euros, much like you would at a Bureau De Change. It always involves two currencies, known as a currency pair. Forex trading can be viewed as a network of buyers and sellers who exchange currency at an agreed rate. This form of trading can be done for practical purposes, but it’s mostly performed to earn profits from the conversion. When trading forex, you look to anticipate the movement of currency - in either direction - since you can either “buy” a currency or “sell” it against the other quoted currency. The market witnesses a daily average of $5 trillion worth of trading activities.
Benefits of Forex Trading
The Forex market is an attractive market and is one of the most actively traded markets in the world for the following reasons:
- It is the world’s largest market with matchless liquidity
- The market offers flexible operating times; 24-hours a day throughout the business week
- The trading system is transparent and centralised, which allows for maximum returns on minimal investments
- It is easier to trade owing to ongoing technological advances
- There is potential to profit from both long and short selling
- There are several choices of more than 60 popularly traded currency pairs
Trading Hours in Forex Market
The forex market is open globally, 24 hours a day, five days a week. It begins when the financial institutions in New Zealand open, and then continues throughout the day as other institutions open across Europe, Asia, and the Americas. This pattern continues through business days with overlapping time zones, meaning that trading hours are quite flexible.
How to Trade Forex?
Forex trading is a great choice of investment for both beginner and existing traders. Alongside the many opportunities for professional traders to diversify their trading portfolio, FX also offers a smooth trading experience for beginners. ADSS offers award-winning platforms and services to help make trading a great experience for traders of all levels of expertise.
Forex trading always involves a currency pair and you can choose from over 60 different ones. The base currency is the first one listed, and the quote currency is the second. The price of a forex pair equals how much one unit of the base currency is worth in the quote currency. Next, you need to determine to either buy and go “long” or sell and go “short”. This decision depends on your expectations from the currencies, whether to increase or decrease in value. Market factors, economic events, trading strategy and news, are all factors that influence this choice.
Buying is the right move when you forecast that the base currency will increase and the quote currency will decrease against it. Which means profits will rise as the exchange price increases. Whereas, selling demands a decrease in the base and a rise in the quote currency against the base. In this case, profits will rise with every point the exchange price falls.
What are Pips, Margin, Spread and Stop Losses in Forex Trading?
There are essential terms to understand before trading forex:
- Pips: Short for “price interest points”, they are the digits after the decimal point in the currency price displayed. Pips help measure the variation in the exchange rate for currency pairs
- Leverage or margin: To open a forex trade, you need a small proportion of the opening required amount. This percentage is determined by the margin or leverage settings when first creating a trading account. At ADSS leverage up to 500:1 is allowed on each forex trade
- Spread: Difference between the sell or “bid” price and the buy or “offer” price
- Limit orders/Stop losses: Stop loss is a way to protect losing trades and minimise losses on long positions by stopping trades at a set price lower than the current market level. To limit orders is to lock prices by closing out trades at a set level better than the current market rate
- Lot: Batch of currency that helps standardise forex trades since it moves in small amounts. Lots tend to be large; a standard lot is 100,000 units of the base currency
Forex Currency Categories
Currencies are listed as three-letter codes in each pair with the first two letters referring for the region, and the third for the currency name. GBP/USD is a currency pair that indicates buying Great British Pounds and selling US Dollars. Most trading providers categorise currency pairs in the following sense:
Major Pairs: These are seven currencies that form 80% of global forex trading: USD/JPY, GBP/USD, EUR/USD, USD/CHF, USD/CAD, AUD/USD and NZD/USD.
- Minor Pairs: Currencies that are uncommonly traded and often consist of major currencies against each other instead of the US dollar. These include EUR/GBP, EUR/CHF and GBP/JPY.
- Regional Pairs: Which are classified by region, such as, Australasia or Scandinavia. Examples of regional pairs are EUR/NOK, AUD/NZD and AUS/SGD.
- Exotics: Is when a major currency is paired against one from an emerging or small economy: Examples of exotic pairs include: USD/PLN, GBP/MXN and EUR/CZK.
Types of Forex and Currency Markets
The forex market is governed by a global network of banks that are spread across four primary forex trading centers in different time zones: New York, Tokyo, London and Sydney. And since there isn’t a central location, it means you can trade forex any time of the day. Types of forex markets include the following:
- Spot forex market, which is the physical exchange of a currency pair taking place at the exact point the trade is settled within a short period of time, meaning on the spot.
- Future forex market is a contract to buy or sell a specific amount of a currency at a certain price and is to be settled at a planned date in the future. This type of contract is legally binding.
- Forward forex market involves a contract to buy or sell a specific amount of a currency at a set rate and is to be settled within a range of future dates or at a set date in the future.
Most traders contemplating forex prices do not plan to take delivery of the currency itself; instead, they make exchange rate predictions to take advantage of market price movements.
In general, traders never plan to take physical possession of the currency, they simply make predictions on currency pairs to take advantage of market movements.
Why Trade with ADSS?
- Trade spot forex market with customisable leverage up to 500:1 and use our platforms on mobile, tablet and web.
- Trade over 60 currency pairs in the world in the largest and most liquid market by opening a demo account today with ADSS
- Diversify your existing portfolio and hedge against other financial investments
- Access advanced charting tools and analysis with more than 50 indicators and customise to your own needs
- Regulated by the Securities And Commodities Authority (SCA) in the UAE and the Financial Conduct Authority (FCA) in the UK
- Find help and assistance with our institutional standard of customer care for new traders and professionals alike