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The Forex market is the market in which currencies are exchanged and where the value of a currency is quoted. Forex traders will then try to take advantage of variations in this value to make money on the stock market. In this article, we will review the basics of Forex and trading.

The Forex Market
The Forex Market

What is forex

Forex is a portmanteau referring to Foreign Exchange, which is the foreign exchange market, where currencies are traded and exchanged.

These exchanges on the Forex market create variations in the prices of currencies, which the Forex trader tries to take advantage of to make money.

The Forex market is global, second in terms of trading volumes after the interest rate market.

Understanding Forex

We saw above that Forex is the market on which currencies are quoted, but you should know that currencies are quoted in pairs. We express the value of a currency about another currency.

How to read a Forex quote

When we see EURUSD is at 1.1500, we should read 1 euro is worth 1.15 dollars. EUR is the base currency, and USD is the counter currency. Thus the EURUSD pair gives the value of 1 euro expressed in dollars. Generally, the quotation on the trading platforms displays 4 to 5 digits after the decimal point.

Which Currency Pairs to Trade

We quickly understand that there are hundreds of currency pairs to trade on Forex, each currency being expressed in the value of each of the other currencies: EURUSD, EURGBP, EURJPY… then USDJPY, USDCHF, USDCAD… and so on.

However, the Forex trader often chooses to focus only on the "major" currencies: EURUSD, GBPUSD, USDJPY and USDCHF, and sometimes adding AUDUSD, NZDUSD and USDCAD. This allows better monitoring of price changes, but also of news impacting prices.

What Influences Forex

Forex trading, therefore, requires following the evolution of prices and current events but also understanding how current events influence currencies.

To make the analogy of the stock market, we can consider that the country (or monetary zone) is the company, and the currency is the action. Any positive or negative news on a country will impact its currency, always under the principle of supply and demand.

Among the factors that most influence the price of a currency are interest rates, inflation, growth, employment, but also political events. Not to mention the monetary policy of central banks.

This is why the economic calendar is an essential working tool for the trader.

Why Choose Forex Market

  1. It, therefore, offers the possibility of trading over longer time slots than on other markets. This is particularly useful when an event is expected in the evening, but also to open/close a position at any time, without having to wait for the markets to open the next day and suffer price gaps. This can save the trader in case of surprise news after the closing hours of other markets.
  2. Plus, Forex is the most liquid market in the world, making it easy to find a counterparty to your position. This allows rapid execution of trading orders and avoids discrepancies between the requested price and the price obtained: slippage.
  3. Finally, brokerage fees in Forex are generally lower than in other markets.

What is Trading

  • What is trading?

Trading explanation. Trading is the buying and selling of financial assets to profit from rising or falling prices.

Unlike a "classic" investor who buys a product and waits for its value to increase over time before reselling it, the trader generally adopts a more dynamic approach, with operations that can last a few days, a few minutes, even a few seconds.

This is a potentially more lucrative approach, but also a riskier one.

  • What is Forex trading?

Forex trading, therefore, consists of buying and selling currency pairs on Forex, trying to predict which direction the pair will take in the next few days or minutes.

Understanding Trading

  • How to trade on Forex?

To trade Forex, you have to approach a broker (broker) and open an online account. First, it is strongly recommended to start with a Demo account to trade virtual and learn, before investing your money.

Learning the basics of trading is an essential prerequisite for understanding Forex and hoping to make money.

Online training is generally offered by brokers.

  • What trading strategy?

In trading theories, two main currents clash fundamental analysis and technical analysis.

  1. Fundamental analysis consists of the study and analysis of economic figures to know the value of a company or the state of health of a country. From this we derive a “fundamental” or “real” value of the share or currency, to be compared to the value observed on the market.
  2. Technical analysis is the study of price charts, assuming that certain price patterns repeat themselves. The practice also includes statistical studies on price developments. Indirectly, we also deal with the psychology and mass behaviour of traders.

To summarize, fundamental analysis focuses on the company, country or asset represented, while technical analysis focuses on price.

A consensus tends to emerge on the need to combine the two practices, instead of opposing them.

Forex trading can be risky, so try to know everything about trading before betting on your money.