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All you need to know about Forex

Foreign exchange market or Forex, is the worlds most traded market that exists today. Making a turnover of 5.1 trillion $ per day. If you are interested in investing some money and participating in the world biggest market. Here, we will show all you need to know about it.

What Is Forex and How I Can Invest in It?

Also called Foreign Exchange or FX, is the trading of one country currency to another. These transactions are made by, financial institutions, banks and individuals. Keep in mind that the latter are at a great disadvantage because they don’t have the economic power of central banks to trade billions of dollars.

There Are Two Main Wats to Invest in Forex:

Forex CFD: this is a contract where you try to determine in advance if an assets price will go up or down. CDF means contract for difference, and you’ll be the responsible to exchange the difference in the price of the asset in question.

This means that if your forecast is correct, you’ll earn profit based on the difference of value in a predetermined future time when compared with the starting value. Keep in mind that if your forecast is incorrect, you will earn a debt that you must pay.

Forex trading via a broker: this works like CFD trading, you´ll speculate on the price movement of currency pairs. Currency pairs are the price relative to two countries currencies. For example, GBP/USD is the currency pair involving Pounds and Dollars.

Keep in mind that every country has its currency market name based on a 3 distinctive letter code. The most frequently traded pairs are

  • EUR/USD for euros and US dollars,
  • USD/JPY for US dollars and Japanese Yen,
  • USD/CHF for US dollars and Swiss Francs
  • USD/CAD for US dollars and Canadian Dollars
  • AUD/USD for Australian dollars and US dollars
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This are the “Major Pairs” and make up 80% of the global foreign trade. Minor pairs, less frequently traded include combinations of the currencies named before excluding the USD.

There are also Exotic Pairs that exchanges one major currency with a small or emerging currency like GBP/MXN for pounds and Mexican pesos.

How Does This Market Move?

Since every country economic situation is different, there are many factors that determine what makes prices go up or down. One of the most common factors that is present not only in forex, but also Stock market and cryptocurrency trading is the Market Sentiment.

News plays a major role on the market sentiment as people watch how a country is attacked by a terrorist group or how a country achieved the goal to send a rocket to space. These news drive the currency price.

Credit rating of a country is one of the economic data that investors look to determine the country’s likelihood to pay its debt.

Keep in mind that the forex market is open 24 hours a day from 9pm Sunday to 10 pm Friday UK time. However, since the world’s economy doesn’t stop on weekends, central banks are able to make transactions. This means that the price of a currency might go up or down without a way for investors to react on time.