Forex is the short form of foreign exchange market and forex is a global and decentralized market where one currency is exchanged with another. And this exchange of currency might be due to any reason like for commerce, trading or tourism etc. According to a global bank daily average trading volume is more than $5.1 trillion in forex market and trading volume of retail trader is on 5 to 6 percent of total volume that is only $300 to $400 billion.
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‘Forex Market’ a global foreign exchange market where currencies are exchanged with one another and this process is called forex trading. Currencies are important to trade internationally whether we accept it or not. For example if you are citizen of UK and you want to buy something from US, In this case you will need to pay in ‘US Dollars’ for the product, doesn’t matter buyer is a person or company. So for this you have to exchange Pound into US Dollars to pay amount in US and same thing apply on a travelers who visit other country. When someone travels other country usually they have option to exchange money at airport (you did forex trading at airport) because when you will buy anything there, you need currency that is accepted in that country.
Currency Pairs (Base and Quote Currency)
‘Currency Exchange’ as it is clear from name that currencies are exchanged in pairs like EUR USD, GBP USD, XAU USD etc (XAU is the symbol of gold). In currency pair the first currency is called ‘base currency’ and second is called ‘quote currency’.
Who Trades in Forex and Why
Forex is mainly trade by banks like central banks, investment banks, corporations and retail traders. In interbank market high volume of currency is traded by many banks through electronic networks. When banks and investment corporations deal for their clients, the difference in ‘ask and bid prices’ is the profit for them that is also called spread. Central banks that represent their governments also an important part of forex market. Trading volume of retail trader in the forex market is very low as compare to banks, corporations and investment companies etc. There are many strategies to earn profit from forex trading.
What is Forex Broker
Anyone can trade in forex market but for this you will need to open and register an account with banks and financial institutions that provides platform for trading, these financial institutions called ‘forex trading’. These financial firms (forex brokers) provide us their services and platform like metatrader 4 to trade in forex market and in return they charge commission in the form of spread.
How to Earn From Forex Trading
Method of earning from forex trading is quite simple and easy but it may be risky if you don’t have experience of trading. You just have to create an account after choosing the best forex broker and fully register your account by submitting documents. After registration and activation of your trading account, you have to deposit funds in your account to start forex trading.
Now you will earn profit by selling or buying the currencies. If you are buying one currency at the same time you are selling other currency means you are exchange one currency with other one. And in this way if you are buy a currency at low price and selling it at higher price you will get your profit that will be according to your selling and buying price difference and lot size. For Example: You are buying in EUR USD (Euro & US Dollar) currency pair at 1.1021 price with mini lot (0.10) and selling it at 1.1031 higher price. It means you earn 10 Pip profit that is equal to 10$. If you are trading with real account your profit instantly and automatically added to your account. In this example price is assumed 1.1021, it means that 1 Euro is equal to 1.1021 USD.
It is reality that you can become millionaire through forex trading if you develop a good trading strategy and follow it.
How to Analyze the Forex Market
There are three main ways to analyze the forex market and possible future price movement for trading.
- Fundamental Analysis
- Technical Analysis
- Sentimental Analysis Fundamental Analysis
In this type of analysis you need to analyze economic conditions, political and social forces that can act on forex market.
In technical analysis you will analyze the forex market by using technical tools like: Fibonacci retracement, trend lines, channels, chart patterns and indicators like: RSI, bollinger band and moving averages etc.
Using this type of analysis you can analyze the market by looking the about other traders thinking how they are taking trade decisions.