Beginner Level: Forex Basics {1}

 

Beginner Level: Forex Basics          

 

(1)   Introduction to forex trading

Forex trading, or foreign exchange trading is the process of buying and selling currencies with the goal of making a profit .The forex market is the largest financial market in the world, with a daily trading volume of over $7.5 trillion. Unlike stock markets .forex operates 24 hours a day ,five days a week ,making it one of the most accessible and liquid market

 

What is Forex?

 

Forex short for foreign exchange refers to the global marketplace where currencies are traded against one another, since businesses travelers, Forex trading plays a vital role in international finance and commerce.

 

For example, if a U.S company imports goods from Europe, it might need to convert U.S. dollars (USD) into euros (EUR) to complete the transaction .Similarly an individual traveling from Canada to japan will need to exchange Canadian dollars (CAD) For Japanese yen (JPY)

 

Forex trading involves exchanging one currency for another with the aim of profiting from fluctuations in exchange rates. If a trader believes the value of one currency will rise compared to another, they buy it, if they expect it to fall, they sell it

 

How the Forex Market works

 

Unlike the stock market, which operates through a centralized exchange like the New York stock Exchange (NYSE or Landon stock Exchange (LSE) forex is a decentralized global market .this means forex transactions occur electronically over the counter (OTC) where traders and institutions interact via online platforms and interbank networks.

Key features of the forex Market

  

1.       Decentralized & Over the Counter (OTC)- No single exchange controls forex trading .instead ,it    takes place through a network of banks ,Brokers ,and financial institutions

2.       High Liquidity – Due to its enormous daily trading volume ,forex allows traders to buy and sell    currencies instantly .

3.       24 -Hour Market -  The forex market operates from Sunday 5.00 Pm EST (New York time  to     Friday 5.00 PM Est , covering deferent time zones across financial hubs in Sydney ,Tokyo,     London and New York

4.    Leverage & margin – Forex brokers allow traders to use leverage ,meaning they can control a lager position with a smaller investment ,However this increases both potential profits and risks 

5.       Bid Ask Spread – Unlike stocks forex traders do not pay commissions but instead deal the spread (the difference between the buying and selling price of a currency.

Who Trader forex

 

 

The Forex market is made up of deferent participants, each with its own purpose for trading currencies

·         Retail Traders – Individuals who trade forex for profit using [online platforms like Meta Trader 4(MT4) , Meta Trader 5(MT5) , and Trading View

·         Banks & Financial Institutions – Large banks like JPMorgan, Citibank, and Deutsche Bank trade huge amounts of currency daily to facilitate global transactions.

·         Central Banks – Governments and central banks (such as the U.S Federal Reserve or the European Central Bank) influence forex markets by setting interest rates and monetary policies.

·         Corporations & Businesses – Companies involved in international trade exchange currencies to pay for imports, exports and overseas operations.

·         Hedge Funds & Institutional Investors – Large investment firms and hedge funds trade forex as part of their broader investment strategies.

Major Currency Pairs and Market Participants

 

Forex trading is based on currency pairs, which represent the value of one currency relative to another. Each pair consists of a base currency (the first currency) and Quote currency (the second currency )

For example, in the EUR/USD currency pair

 

·         EUR ( Euro) is the base currency

·         USD (U.S Dollar) is the quote currency

 

Types of the Currency pairs

1.       Major Pairs – The most traded pairs in the world ,always including the USD   .These pairs have the highest liquidity and lowest spreads
 
·         EUR/USD ( Euro /U.S Dollar)
·         GBP/USD ( British Pound / U.S Dollar)
·         USD/JPY(U.S Dollar /Japanese Yen)
·         USD/CHF (U.S Dollar/Swiss Franc)
·         AUD/USD ( Australian / U.S Dollar)
·         USD/CAD (U.S Dollar/ Canadian Dollar)
 
2.       Minor ( Cross ) Pairs – Pairs that do not include the USD but involve strong       global currencies
 
·         EUR /GBP (Euro/ British Pound)
·         EUR /AUD (Euro/ Australian Dollar)
·         GBP/JPY (British Pound/ Japanese Yen)
·         AUD /JPY ( Australian Dollar / Japanese Yen)
 
3.       Exotic Pairs – Pairs that include one major currency and one from a smaller or developing economy .These pairs are less liquid and have wider spreads

 

·         USD /TRY (     U.S Dollar / Turkish Lira)

·         EUR /ZAR (     Euro/South African Rand) 

 

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Conclusion

 Forex trading is an exciting fast paced market that offers great Opportunities for traders worldwide .Understanding the basics of forex trading how the market operates and the different currency pairs is the first step toward becoming a successful trader

The next step is to learn how to analyze price movements ,manage risk and develop a solid trading strategy  .in the following lessons .we will drive deeper into technical and fundamental analysis trading strategies ,and risk management techniques to help you trade with confidence