Before you can understand how to trade with foreign currencies, you need to understand several Forex basics. Let us start with an introduction to the Forex market. XFR Financial Ltd (XTrade) experts say that we can define the Foreign exchange market or Forex market with the following specific functions like:
- Forex market facilitates the conversion of the currency of one country to another. It is done through the purchase and sell of the currencies.
- It sets and quotes the global exchange rates
- Contracts are offered to the global firms to manage the exposure to foreign exchange
Forex basics – characteristics of the market
An important thing which falls under Forex basics is the features of Forex market. Let us have a look:
- Forex market is the biggest financial market of the world with more than 4 trillion dollars traded every day.
- The market operates 24 hours except the weekends. There is no central trading location and trades take place through a network of computer and telephone connections in the world.
- The most popular trading currency is the US dollar and it accounts for the majority of the foreign currency trades
- The most popularly traded currency pair is the USD/EUR which is US Dollar/Euros.
Currency Designations at XFR Financial Ltd
Let us move forward with another Forex basics fact, provided by XTrade and XFR Financial Ltd expert traders. All currencies are assigned an International Standards Organization designation. The examples are:
- USD for US Dollar
- JPY for Japanese Yen
- GBP for Great British Pond
- EUR for Euros
- AUD for Australian Dollar and similar
Exchange rate is simply the ratio of one currency rate with respect to another and therefore this relationship is expressed using two currencies in a pair. Like-
- EUR/JPY etc
The first currency in the quote is called base currency while the second currency is called the quote currency.
Bid and Ask
A quote is always represented with two prices and the first is called bid and the second is called ask price. For example- EUR/USD 1.3111/1.3216
The first one is called the market maker’s bid price which means its buy price and the second is maker’s sell price which is ask price. The bid price is always lower than the ask price.
How Forex trading is done at XTrade
Another important thing in Forex basics is to learn how trading is done at brokers like XTrade or XFR Financial Ltd. Forex trading is simple and it is all about buying and selling of currencies in a pair. Let us take the example of EUR/USD pair. If you as a trader feel that in future EUR will strengthen against USD, you buy more Euros with USD and later you sell those Euros again when the price actually increases. Thus you make profit by getting more USD in return.
Forex trading is done with the help of a Forex broker like XTrade or XFR Financial Ltd which facilitates Forex trading for you. Today Forex trading is done with the help of online Forex brokers.