When somebody says “market,” the first thing that probably pops up in your mind is the stock market. Well, that’s arguably the most famous financial market. However, there’s another kind of market Financial Services that can give you tons of cash by, well, trading money. It’s the foreign exchange market.
What is the forex market?
The foreign exchange market, or FX market, or forex market, is where currencies from different countries are traded against each other. It doesn’t take Funding Methods an economic analyst to know how it works. For instance, you go to another country and then you exchange your country’s currency to the local currency of the foreign country. You’ve already participated in the foreign exchange market.
A Short Trip Down Memory Lane
All nations have their own currency, meaning one currency is unique for each country. Forex is basically buying one nation’s currency by giving another currency of another country.
This practice has existed for many, many years. Trading has also become more sophisticated, along with the trading of currencies. Simply put, as time went by, the need to exchange one currency for another has also exponentially increased, paving the way for the establishment of a formal system for forex.
When the trading between countries improved, Britain was the strongest nation and navy, spreading its commercial interest across its vast empire. It goes without saying that it was the most active trading nation. Britain’s currency, the British pound/sterling, was treated as the benchmark with which other currencies’ values are derived for the better part of the seventeenth, eighteenth, and nineteenth centuries.
Nowadays, most currencies are compared with the dollar, which is currently at the helm as the most active and commercially strongest trading nation.
The forex market is open 24 hours and it is only closed from Friday evening to Sunday evening. There are, overall, three sessions that includes those of the Europe, Asia, and the United States. There are some overlaps in the session, and even so, the main currencies of each market are traded largely during those market hours.
What does this mean? It means that specific currency pairs will have more volume during specific sessions. If you stick to the currency pairs that have the dollar as their base currency will find that the US trading session is where the most volume is.
The currency is traded in various sizes. The micro lot is 1,000 units of a currency. If you have an account that is funded in US dollars, the micro lot is $1,000 of you base currency, which is the dollar. A mini lot, on the other consists of 10,000 units of your base currency, while a standard lot is 100,000 units.
Pair and pips
In the stock market, you’re only dealing, most of the time, with one company’s stock, thinking whether you should buy or sell it. In the forex market, you’re always dealing with two currencies, or currency pairs.
When you buy a currency, you are simultaneously selling another. Almost all currencies are priced out to the fourth decimal point. A pip, or percentage in point, is the smallest increment of trade.