How to trade effectively with forex

What is Forex?

Forex, also known as foreign exchange or FX, is one of the largest and most liquid financial markets in the world. The value of the world’s currencies fluctuate constantly in relation to each other because of a myriad of factors. These fluctuations can be used to your financial advantage with a little knowledge and investment. The Forex market trades volumes exceeding $5 trillion every day, and there are over 150 currencies in use internationally.

If you’ve ever made use of a foreign currency for any reason, such as going abroad, then you’ve completed a Forex transaction. By exchanging your currency for another you’ve either made a gain or a loss based on the exchange rate of the currencies concerned – this is based on supply and demand which can be effected by a myriad of factors.

Why should I trade in foreign exchange markets?

Forex is a great way to invest in a trading market as a beginner or an expert. The risk is fairly low compared to some other markets and it doesn’t require excessive capital to invest and still see profit. Most forex trading will be completed through a reputable broker, and many people will make use of various online brokers. These can be especially beneficial for beginners and experts alike.

Alongside the ability to invest and trade, these companies will often provide other helpful services which may aid in your investments. These include market information, relevant political news and statistics. Broker sites will also often provide a risk-free trade simulation service which makes them ideal for beginners who want to test the water when it comes to forex trading but don’t have the capital or experience to make significant investments. And on top of all this, internet based systems mean that you can complete forex trading from home at your leisure.

 How does Forex trading work?

The exchange rates of currencies fluctuate on a daily basis due to various factors. This is mainly based on supply and demand of the currency in question, which can be affected by a plethora of changes in the world whether they be financial, social or political. On one day, a currency may be worth a certain amount in relation to another. The next day, this could change. For example, if you were to exchange a pound for a Euro on one day you might receive 1.18 Euros. On the next, you might receive 1.17 Euros, but as a result of an identical investment as the day before. These small changes in exchange rates can yield profits or losses based on the judgement behind your investments. The greater the scale of your investments, the greater the potential for profit.

Forex trading revolves around a pair of currencies, or a ‘Forex pair’. Essentially, you’re betting on the value of one currency against another. A popular example of a Forex pair is EUR/USD, the Euro against the US Dollar. In a forex pair, the first currency is the ‘base’ and the second is the ‘counter’, or the ‘quote’. Within this pair, the base currency is essentially borrowed in order to buy and sell the counter currency. The logic behind forex trading is that if you think the base currency will go up in value against the counter currency then you invest in the pair, and if you think the base currency will decrease in value against the counter currency then you remove your investments in the pair. Ultimately, despite the small units by which the exchange rates fluctuate, this market can be an ideal way to make profitable and medium to low risk investments for anyone, from beginners to experts.