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forex

What is forex ?

Forex (also known as FX) is simply the shortened name for ‘foreign exchange’. And foreign exchange is the trading of one currency for another.

A forex trader speculates on the price movements of one currency against another with the aim of making a profit.

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Forex

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Key forex facts

It’s huge

Forex is the world’s most traded market with over $7.5 trillion* being traded every day. To put it in perspective, the daily average volume for stock market trading is only $553 billion (7% of forex’s size)**

You’ve probably already done it

When you holiday in another country, you have to exchange your money into the foreign currency to spend money there.

They come in pairs

You’re always trading one currency against another e.g. the British pound against the US dollar (GBP/USD).

There are always opportunities

Forex is an exceptionally liquid and volatile market and it’s reacting all the time. This makes it especially attractive to day traders looking for short-term wins.

There’s no exchange

Unlike shares which use exchanges such as the New York Stock Exchange or London Stock Exchange, forex is traded by a global network of banks.

It never sleeps

You can trade forex 24 hours a day, 5 days a week. This is because the time zones of the four trading centres (London, New York, Sydney and Tokyo) overlap with each other. So when one closes, another opens.

Why trade Forex?

8 reasons to trade forex

Great for short-term opportunities

As the forex market is so big and volatile, it’s constantly offering up new opportunities. In fact, most forex trades are held for just a few days.

It’s open 24/5

The different time zones of the forex trading centres (London, New York, Sydney and Tokyo) mean that at least one is always open e.g. when New York closes, Sydney opens.

A range of different markets

On FOREX.com, you have over 80 forex pairs to choose from including EUR/USD, EUR/GBP and AUD/USD.

No commissions

There are no commission fees when you trade forex. As your broker, we are compensated by the spread (the difference between the buy and sell price), and forex markets have some of the tightest spreads of any asset class.

Take long or short positions

You can buy and sell forex pairs. This means you can take advantage of both rising and falling markets.

Low risk of manipulation

Because the forex market is so vast, it’s next to impossible for any single actor to exploit it in any significant way.

Leverage

Leverage lowers the cost barriers to trade forex. It enables you to put up a fraction of the deposit to access a much larger trade size. Leverage can magnify your profits, but it can also magnify your losses. This is a critical trading concept to understand.

What affects the forex markets?

There’s a reason why forex traders are constantly analysing the news. Forex is influenced by a plethora of factors—both economic and political—which puts the prices constantly in flux.

Economic data

Economic data gives an indication of the health of an economy and therefore the national currency. Unemployment data, government debt, inflation and interest rates are all figures that forex traders should have on their radar.

Political stability

Major events such as elections, trade deals, conflicts, environmental disasters and pandemics can all have a profound effect on a currency. However, more minor events such as cabinet reshuffles or small policy changes can also have an impact.

Supply and demand

Supply and demand is one of the biggest factors that influence the forex market. If there’s a sudden spike in demand for euros, then this reduces supply and the price will consequently rise.