Essentials Of Forex Trading

Posted by Drake Moore on November 27th, 2019

Forex trading forms a huge chunk of global currency trading across the globe rendering whopping profits to various organizations and banks that actively participate in the process. In general terms forex trading is defined as the buying or selling of currency in the currency market with the help of dedicated online forex or CFD broker brokers, more on brokers here.

Typically the leverage ranges between 30 to 200 times. Forex trading operates 24*5 and the currencies are transacted in pairs. The pairs of two different currencies such as Euro-Us dollar pair or Canadian dollar-euro pair etc.

Forex trading operates,  on the purchase and sale of various leading currencies across the world, CFDSpy provides more details. However people usually invest in currencies that have higher return on investment. The highest paying goose in the currency market are following currencies Euro (EUR), Japanese Yen (JPY),British Pound (GBP),New Zealand Dollar (NZD), US Dollar (USD), Canadian Dollar (CND) and Australian Dollar (AUD). Like the stock exchange rate the transactions in forex exchange take place through forex rate.

The forex rate can be defined as the rate of difference between the base currency and the counter currency. From the currency pair the currency which is sought to be bought is termed as the base currency while the currency with which the base currency is exchanged is termed as the counter currency. Thus if the rate of EUR/USD is 1.31 on 5th Feb, 2012, it implies that 1000 Euros can be purchased in exchange of 1031 USD. If the rate fluctuates to 1.58 at some later stage the investor can redeem 1058 units of the counter currency thus earning a profit of 26 USD. This transaction turns a huge amount if the money involved is higher.

At a given point of time there is always difference in the rates at which an investor buys(bid) a particular pair and then sells(ask) it i.e., the buying is always slightly higher than selling a particular pair. Thus if an investor buys a pair and immediately sells it, he will lose money in the transaction. This bid/ask difference is usually indicates in Pip or basis point of 0.0001 or less.