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Understanding The Forex Market – How Does Forex Trading Work?

The Forex market is a global marketplace participated by millions of investors all over the world. If you have tried investing in the stock market, you most likely heard about Forex trading and investing. But if you want to widen your horizon in investing, you should venture into the world of foreign and experience how exciting it can get.

Trading currencies in the Forex market always go in pairs because one currency is what you sell while the other currency is what you buy. The liquidity in the Forex market is quite deep and this goes throughout for 24 hours. With this, investors are given enough time to take on every opportunity to earn profits and widen their portfolios.

How Can You Make Profit in the Forex Market?

The Forex market is being played by banks, hedge funds, brokers, and retail traders. In Forex, one currency is being traded into another with an aim to acquire some profit. Central banks are tasked to maintain the value of the currencies of different countries. The value of a currency is represented as an exchange rate that will be traded in the open market.

Traders in the Forex market can either trade directly into the spot market or buy and sell derivatives. They are allowed to trade forwards, futures and swaps. There are currently four groups of currencies in the market. Each group is categorized based on the number of trades being made each trading day.

Getting To Know The Regional Currency Pairs

Another group of currency pairs in the Forex market that isn’t always being recognized is the regional currency pairs. They are named from geographic regions like Scandinavia and Australasia. Examples of regional pairs are AUD/NZD, EUR/NOK, and AUD/SGD.

Getting To Know The Exotic Currency Pairs

These currency pairs are still blossoming in the Forex market. They are made up of major and minor currencies such as USD/PLN, EUR/CZK, and GBP/MXN.

Getting To Know The Minor Currency Pairs

Minor currency pairs do not have the U.S dollar in them. These currency pairs include EUR/CHF, EUR/GBP, and GBP/JPY.

Getting To Know The Major Currency Pairs

This group of currency pairs always has U.S. dollars in one of the paired currencies. Major currency pairs include EUR/USD, USD/CHF, EUR/USD, and USD/JPY. These 4 currency pairs are responsible for 80% of trades in the Forex market.

Currently, the most traded currency around the world is none other than the US dollar. It accounts fora $5 trillion volume of trades every day. According to the data released by the Bank for International Settlement (BIS), Euro is also fighting to be at the top spot as it currently has $2.1 trillion of trading volume every day. Meanwhile, the Japanese Yen and Pound Sterling goes to the third and fourth position with an average of $1.1 trillion and $844 billion trades per day.

Takeaway

Forex trading is full of benefits. However, you must also not forget about its risks and disadvantages. As much as possible, you must be careful in handling your trades and seek professional advice if you aren’t sure of your moves. Remember that knowledge of the basics of trading is important to become a successful trader.

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