Forex trading—or foreign-exchange trading—is the buying and selling of international currencies. Learn more about what forex trading is and how it works.
Veteran stock traders might know about pairs trading. Pairs trading involves taking a bullish position in one stock or index paired with a bearish position in another, essentially trading the value of one security relative to that of another.
The forex market is another way to access pairs trading. In Forex, however, traders use currency pairs, which essentially is trading the value of one currency relative to that of another currency. Each currency pair is the ratio of one currency’s value to another currency’s value.
What is forex trading?
Forex trading takes place in a dynamic, international market that is open virtually around the clock. Because foreign exchange rates are based on international interest rates as well as macroeconomic and geopolitical conditions, they’re always fluctuating.
The forex market is not conducted on an exchange, which means there is nomor physical location where all currencies trade.
Before considering trading forex, here are some basics every trader should understand:
Leverage: Forex trading involves leverage, meaning traders can take a position in a larger investment with a relatively small amount of initial capital. This allows for strong potential returns, but traders should be aware that it can also result in significant losses and losses greater than your initial investment.
Nearly 24/6 market: Traders need to be responsive to market conditions and economic events knowing that they can trade almost 24 hours per day, 6 days per week, from Sunday to Friday.
Liquidity: Forex is a very active market with an extraordinary amount of trading, especially in the major currencies. Trading more obscure pairs may present liquidity concerns.
Trading: Forex currency pairs are traded in increments of 10,000 units, and there is nomor commission. However, the biaya of the trade is reflected in the bid/ask spread.