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What is Forex?

Currency trading – or Forex – is the world’s largest financial market with an average daily turnover of about $5 trillion. Theforex.info offers 24-hour CFD trading, from 8am Sydney time monday to 4pm on Friday New York time. Forex is a currency purchase for another currency. Theforex.info offers CFD trading on more than 70 pairs of different currencies.

In the forex world, there are three main markets:

Spot Forex Market – a currency pair physical exchange, which occurs on a specified date (generally refers to a trading day plus two days – “T+2”).
Forward Forex Market – a market for off-exchange contracts (OTC) to buy or sell a specified amount of currency at a certain price at a later date.
Forex Futures Market – A Forex futures market is a contract traded on the stock exchange to buy or sell a specified amount of a certain currency at a predetermined price on a specified date in the future.

Introduction to Forex

As we mentioned earlier, Forex is about trading currency pairs, and can be defined as an instant purchase of a currency against another. This is done mainly in the OTC market – off-exchange trading. However, it is also traded on futures exchanges.

Currency pairs are generally divided into four main categories: major currency pairs, secondary currency pairs, and pairs of special (exotic) currency intersections. Major currency pairs are always pegged to us din (USD) traded against other major currencies such as eur,gbp, Swiss franc (CHF), JpY, Canadian dollar (CAD), Australian dollar (AUD) and NzD. Secondary currency pairs and intersections contain one of the major currencies against any of the currencies that are traded in smaller quantities.

Forex movements reflect a number of different fundamental factors such as economic growth, international trade flows and changes in interest rates.

Before you start trading, you need to learn how to read the currency pairs: the first currency is called the currency “base”, and the second currency is the currency “quoted”, or the currency of pricing. For example, if you buy a EUR/USD currency pair, you buy the euro and sell the US dollar. If the euro rises against the dollar, you will make a profit. Conversely, if the euro falls against the US dollar, you will suffer losses.

The exchange rate is also reflected in the quoted currency. Therefore, if EUR/USD is traded at 1.1322, it means that 1000 euros can be redeemed at US$1132.20.
What drives the Forex market?

There are several different factors that directly affect the Forex market, some of which are:

Central banks – Central banks in all countries determine how much money is pumped, and if the central bank injects money, the value of the currency falls. In general, central banks control the interest rate rate rate, which is a key factor in the rise or fall in the currency rate.
Economic data – Economic status reports are among the most important indicators that increase the rise or fall in the currency price. Important economic data include: average unemployment, inflation rate and trade balance.
Interest Rate – The change in the currency rate movement occurs when the central bank makes a sudden change in the interest rate. For example, if the central bank suddenly decides to lower the currency interest rate, it is only natural that this will lead to a sharp depreciation of the currency (because the market responds to any sudden change in monetary policy).

Of course, in practice, this will not be easily clear. Therefore, you should use a set of indicators and combine them together, and the quoted currency should also be taken into account. You can use charting instruments and economic timelines as indicators when you start or close a trade.
Definition of key terms in Forex

Here are some definitions of Forex terms that you should be familiar with when trading online.

Pip (pip) – In general, it is the lowest price change that can be seen in exchange rates.
Spread is the difference between the selling price and the purchase price of a currency pair.
Leverage – Allows you to trade higher amounts with less capital. A 1:50 leverage means you’ll need $200 in capital to make a $10,000 deal.
Exchange Rate – The value of the base currency against the quoted currency.
Bid – the price at which a trader accepts to sell a currency pair.
Ask – the price at which a trader accepts to buy a currency pair.

It is also important to know the aliases of common forex pairs. For example, a GBP/USD pair is called “cable”, and the EUR/USD pair is called “Viper.”” The USD/JPY pair is also known as “Ninja”, and USD/CHF is called “Suizi”, and USD/CAD is referred to as “color”.
Common currency pairs

The bulk of foreign exchange trading is priced against the US Dollar USD, which is the world’s main and official currency. As we mentioned earlier, all major currency pairs are traded against the USD, which is generally popular in trading. You also find a lot of highly traded cross pairs, including EUR/CHF, EUR/GBP, AUD/JPY – to name a few.

In general, the highest currency pairs in circulation are:

EUR/USD – This is the most common pair, which is widely traded, the highest volume and most liquid. To learn more about eur/USD, click here.
GBP/USD – a very common currency pair, more volatile than EUR/USD. Gbp/USD volatility has been higher recently due to the effects of the “Brexit” and the economic uncertainties this has brought. To learn more about gbp/USD, click here.
USD/JPY – Is the most volumeed currency pair in circulation after the EUR/USD pair. It enjoys huge trading due to the large size of japan’s economy and its influential role in trade and the world economy. Due to Japan’s geographical location, the yen’s trading also represents the economic and geopolitical conditions in the wider Asian region. To learn more about the USD/JPY currency pair, click here.

The seven major pairs account for more than 80% of total Forex trading. Intersections are currency pairs that do not contain usd as one of the two ends, such as EUR/GBP, AUD/NZD, EUR/CHF. Special currency pairs (foreign) are major currency pairs against currencies of less liquid economic entities, such as EUR/CHF (eur/CHF), or USD/MXN (USD/Mexican peso).
How to choose the best currency pair to trade?

When choosing the currency pair you will trade on, you should test your strategy either through the most popular common currency pair, or through your local currency against the US dollar, through the demo account. Free and unlimited that we offer. Be careful and diligent in your trades, open small positions at the beginning and keep a close eye on market performance over time.

Theforex.info offers CFD trading on the world’s most popular currency pairs, and our advanced online CFD trading platform offers the possibility to operate a free trial account, as well as a variety of educational resources and trading tools provided to both new and experienced traders. Our spreads – spreads – are few and competitive, and the platform is designed to be easy to use, without compromising in-depth analytical insights and complex trading options.

This article contains general information and does not take into account your personal circumstances.

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