Forex Market Explained in Basic Terms

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The foreign exchange market, a.k.a. forex or FX market, is a lot different than the stock market. Forex is the trading of different currencies against each other globally. The stock market is based on trading stock in businesses locally. Forex has been around since the 70’s. Far out man!! What is even more far out is what you are actually trading. Pips, a pip is a fraction of a dollar, actually a fraction of a penny, 1/100 of a penny to be exact. You see currencies are constantly changing ever so slightly, people bet on these changes. For example if I buy U.S. dollars and sell in Canadian dollars and it is done at the right time I will actually make money. Another really great thing about forex is that you can bet on the currencies going either way.

To compare the Forex market to the stock market would be unfair. The Forex market is a global marketplace where Trillions, yes, Trillions of dollars are traded daily. That is more money than Bill Gates and Donald Trump have combined, being traded Daily!! Many things affect the different changes in currency pairs; banks, governments, financial institutions, and environmental disaster are all factors that come into play.

Since there is many different currencies being traded there is a potential to gain or lose a great deal of money. It is not for the weak stomached investor. However there are people that make careers about analyzing graphs and coming up with strategies. They are known as expert advisors, a.k.a. EA. If you have a broker, who is easily obtained online. In fact a large portion of trading happens online and from countries across the globe. Other people use robots, which is basically software designed to tell you what to trade and when, or there are some more advanced robots that do the trading for you.

Take profit and Stop loss; these are two terms to be familiar with. Basically on a chart the currency pair will go either up or down. If the pair hits your take profit line you take the profit, if it hits you stop loss line you take the loss. Some people claim they can perform with no stop loss. Take my advice, don’t do it!! If you do not have a stop loss set you are risking the entire amount in your account. The purpose of a stop loss is to prevent total depletion of your account.

The Forex Market is open 24/5, 24 hours a day 5 days a week to cater to world time. It starts in GMT (Greenwich mean time) in the wee hours of the morning and closes Friday in the late hours of the night. Make sure you know how to translate this into your time zone or you could unintentionally close your trades at undesirable positions.

There are many different currencies traded on the foreign exchange market. To name a few USD (U.S. Dollars), CAD (Canadian Dollars), JPY (Japanese Yen), GBP (Great British Pounds), AUD (Australian Dollar), NZD (New Zealand Dollar), CHF (Swiss Franc), EUR (Euro) as well as many others.

Source by David V James

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.