Trading, whether in stocks, foreign exchange or digital currencies, has received a lot of attention recently. In particular, foreign exchange (forex) trading has seen strong growth.
For those new to the term, forex trading or forex exchange means buying and selling currencies. It’s the exchange of one currency for another – for example, Euros for US Dollars, British Pounds for US Dollars or US Dollar for Japanese Yen. The exchange process involves buying one currency by selling another currency. Exchange rates are based on several factors that cause the appreciation or devaluation of a currency.
The forex market is unique – it operates 24 hours a day, five days a week, and allows individuals from any part of the world to trade. Trade in foreign exchange markets averages more than $5.2 trillion each day, which makes it the most liquid market in the world.
Unlike the stock market, there is no central marketplace for foreign exchange. Trading takes place electronically between a decentralised network of central banks, private banks, brokers, companies, corporations, and traders.
The currencies that are traded in the forex market are represented by three-letter acronyms, such as USD, EUR, AUD and JPY. The first two letters signify the country and the third letter denotes the currency – for example, USD = US + D (Dollar).
How can I make money from forex trading?
You may be wondering how you can make money from forex trading. Because the price of currencies constantly fluctuates, you can profit if you choose the right currencies to buy and sell.
Trade takes place in currency pairs - such as EUR/USD (Euro/US Dollar), USD/JPY (US Dollar/Japanese Yen) and GBP/USD (British Pound/US Dollar).
If you think the price of Euros to US Dollars may rise (that is, that Euros will be worth more compared with the US Dollar in the future) you may consider buying Euros (EUR) by selling US Dollars (USD). Similarly, if you think the value of the US Dollar may rise against the Euro, you can sell EUR and buy USD.
To be a successful trader, you need to understand the bid-ask price. Currency pairs on the forex market are always quoted using a bid-ask price, where the bid price can be considered the sell price, and the ask price understood as the buy price.
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In the example above, the ask price of a GBP/USD trade is 1.2405 and the bid price is 1.2402. This means that to buy one British Pound, you have to sell 1.2405 US Dollars. Similarly, if you are selling GBP to buy USD, you would need 1.2402 British Pounds to buy one US Dollar.
I'd like to try forex trading, how do I start?
Traders use forex brokers to trade in the foreign exchange market. Titan FX is a trusted forex broker, providing a world-class platform that allows our clients to speculate on currency values online.
If you’re new to forex trading, try our free 30 day demo account. This allows you to become familiar with the Titan FX trading platform using ‘virtual’ funds. Try for yourself risk-free - more information can be found here.