In the globalised economy, the value of every currency significantly influences the geopolitical and economic events that occur in any part of the world. Therefore, trading and investment are inevitably tied to the exchange rate of foreign currencies. Investors interested in actively participating in foreign currency exchange to gain from price fluctuations, expertise in forex trade or a hedger seeking to protect their assets from adverse price movements can learn more about what is forex trading and use platforms like Metatrader 4 and Metatrader 5 for easy and secure trade.
What is the FX Trading Market?
The foreign exchange market, or the forex (FX) market, is a global space that allows individual forex traders to buy and sell different currencies in combinations over the counter. Every person purchasing imported products and services participates in the foreign exchange trade. However, forex traders directly have control over their investment in currency exchange. The size of the forex market, number of currency combinations, a variety of volatility options, decentralisation, lower transaction costs and 24 hours day trading from Monday to Friday makes forex trading appealing to many traders. What makes the forex market unique is the currency value taken relative to another currency. The market has a financial system where one can quote the value of one currency (USD) with another (AUD).
Take For Example
Consider the combination of the EUR/USD currency pair where the first currency in the quote is the Euro and the second is US dollars. Here, the trader would use the US dollars to define the value of the Euro. Therefore, if the EUR/USD quote is 1.4000, every Euro is worth 1.40 dollars. They have an indirect correlation where if the price of one currency increases, the other automatically decreases. These price changes depend on supply and demand, like any investment market. Suppose there is a higher demand for one currency, like the USD, its value increases and the value of the paired currency decreases. The transaction affects the currency pair the trader is exchanging and does not affect or cause the depreciation of any other currency.
What Factors Drive the Flow in the Forex Market?
While supply and demand form one major factor that affects the value of a currency and the transaction of foreign currencies, numerous factors move the forex market. Other factors include macroeconomic events like the resignation of a political leader, elections, a country’s prevailing interest rate, unemployment rate, GDP, inflation, debt to GDP ratio, pandemics, wars and more. Forex traders must update themselves with the economic calendar and world news to monitor their investments.
How Does Forex Trading Work?
Forex trading works similar to stocks and shares. If the trader anticipates an increase in the value of a currency, they can consider buying the currency and enjoy the profits. In the forex trading world, this move is known as going ’long’. If they anticipate a depreciation, they can sell the currency, also known as going ‘short’. The forex trading market has two kinds of traders: speculators and hedgers. Speculators are risk-seeking investors who always take advantage of the volatility in the exchange rate. While hedgers always avoid the extreme movements seen through volatility in the exchange rate. There isn’t one universal strategy to trade forex.
Some questions occur like-
What is forex trading? What guidance do they need?
Therefore, platforms like MT4 and MT5 provide all the information necessary for a rookie to practice and invest in the forex market seamlessly.