Forex Trading: What is Forex? FX Trading Explained

Without knowing it, you have probably already participated in the foreign exchange market by ordering imported products such as clothing or shoes, or more obviously, buying foreign currency when on vacation. Traders may be drawn to forex for several reasons, including:trading or looking to build on your existing knowledge, this article seeks to provide a solid foundation to the foreign exchange market.are quoted.

The US Dollar is the second currency in the quote, and this is the currency that the EUR/USD quote is using to define the value of the Euro. What makes this market even more attractive to traders is The around-the-clock liquidity that is often available. This means that traders can easily enter and exit positions as there are many willing buyers and sellers for foreign exchange.This is very similar to other markets: If you think the value of a currency is going to go up , you can look to buy the currency. This is known as going “long”. If you feel the currency is going to go down , you sell that currency.

Another way of saying the above quoted bid price is: The value of One Euro, in terms of US Dollars, is One Dollar, 13 cents, 52 pips and 8/10th’s of a pip.Pip stands for ‘percentage in point,’ and this is the base unit of measurement in a currency pair. The value of a pip will differ based on the counter-currency in the pairing.

Pip cost or value are extremely important data points for forex traders to be aware of, as this is how spreads are communicated; so its very important for traders to ‘know their pips.’One of the biggest risks or drawbacks of learning a market or learning to trade is the fact that trading can be a costly endeavor, and the risk of financial loss is ever-present when trading actual hard capital on a trading platform.

But this doesn’t explain the goals of all Forex traders, as many ‘hedgers’ or institutions are merely looking to alleviate risk against adverse currency movements against their positions or investments. An example of this could be an international company like Toyota, looking to remove or hedge a portion of their exposure in the Yen.

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