What is FX?
Foreign Exchange, also known as Forex or FX, is the world’s largest financial market with around $6.6 trillion-worth of currencies traded daily (BIS 2019). Forex prices are always quoted in pairs, showing how one currency moves relative to another. The most actively traded pair is the EUR/USD (euro vs US dollar), while the GBP/USD (British pound vs US dollar) is also very popular. Our EUR/USD spread is just 0.6 tics wide for 23 hours a day and doesn’t rise on increased market volatility. Whilst other financial markets have a central exchange, Forex trading is done through networks of banks, dealers and brokers, and is carried out 24 hours a day, 5 days a week.
But, what does ‘Forex trading’ actually mean? Well, it’s ‘the buying and selling of global currencies’ with the goal of making a profit, and it can be performed by both businesses and individuals – that’s you!
What can influence the Forex market?
Being a global market, there are a lot of factors that can easily influence Forex prices. These include:
● Interest rates
● Government policy
● Employment figures
● Demand for imports and exports
As there are so many traders and so much money exchanging hands, price fluctuations can occur rapidly, making Forex trading extremely fast-paced and volatile.
How to trade Forex
Now you know what Forex trading is, you might be keen to have a go yourself. But, how do you trade Forex? And what should you look out for?
First of all, you need to get a trading platform. At Trade Nation, you can trade Forex on our spread trading platform whilst our MT4 platform is for CFDs.
Secondly, you need to decide which currency pair you want to trade. At Trade Nation we have over 30 pairs available. When choosing which pairs to trade, there are a few things you should consider:
● How stable or unstable are the countries represented in the currency pair? A country’s political and economic stability relates directly to the value of their currency.
● Are there any big announcements coming in relation to the two countries in the currency pair? Factors such as elections, an announcement on interest rates or economic data releases can create volatility, resulting in price fluctuations.
● During times of stability, there won’t be many price fluctuations within the pair, so chances for making a profit are smaller.
● When things are turbulent (or if you’re trading with minor or exotic currencies), prices can move around dramatically. This will increase your chance of making a profit, but it will also raise the possibility of making a loss – you have to stay nimble!
FX trading is exciting and fast-moving. This means that there are opportunities to profit from price moves but risks as well. This is particularly the case when using spread trades or CFDs to speculate on FX as both products involve leverage where you can control a large position through a relatively modest deposit. It’s important to undertake strict money and risk management to protect yourself against adverse market moves, and never speculate with money you can’t afford to lose.
Read next: Forex trading explained