WHAT IS FOREX TRADING AND HOW DOES IT WORK?


With global daily transactions exceeding $5 trillion, forex is regarded as one of the most dynamic and hottest markets all over the world. So what is Forex, we will discover through the following article.

Forex is a shortened form of Foreign exchange (sometimes abbreviated as FX) where traders, investors, banks and exchanges, buy, sell, speculate on currencies in the OTC market (over- the counter). Transactions were conducted through the interbank market.

What is forex trading

What is forex trading and how does it work?

Forex trading is the activity of buying and selling currencies. The forex price is usually displayed in 4 decimal places, so it can show a small difference of spread (1 pip equals 0.001). however, no one can explain why a decimal is used and not another.

With transactions worth up to millions of dollars, the difference of a few pips between the bid price and ask price will bring you quite a profit. However, in the opposite case, it will also bring a significant loss when making a wrong decision. Therefore, with  knowledge of beginner about forex trading, you must consider all risks that may occur to all your decisions.

Core Terminology for Trading

Position

"Position" is a term that the newbies in forex trading need to know accurately. It describes trading activity when the market goes up or down.

When a trader buys a foreign currency and expects the market to go up to sell that foreign currency and make a profit, the trader is in a long position. When the transaction is made successfully, the position of that trader will be displayed as "closed".

Another type of trader is to sell foreign currencies when the market shows signs of going down and buy at lower prices to make a profit. And when making a successful trade, the position of that trader will also be shown as "closed".

Charts In Forex

Candlestick chart or Japanese candle chart is a chart that most traders like to use because of its visuality. It displays the opening, closing, highest and lowest prices of the trade on the same candle. There are 3 points to note when observing a candle that is open, close and wicks. The wick shows the range between the highest and lowest prices while the body shows the difference between the opening price and closing price. If the body is empty, it means that the price of closing is larger  than the opening; otherwise, if the body is colored, the price closing is lower than the opening.

The bar chart also features the candlestick chart as showing the highest and lowest prices at the top and bottom of the bar. The opening price is the left horizontal bar while the price of closing is displayed in  the right horizontal bar. The body in the middle of the two horizontal bars is the range of price fluctuations. Bar chart are used most commonly to detect reduction and price range increase.

what is forex trading

For a newly knowledged beginner in forex trading, the line chart is a good fit. It is just a line between the closing price of the previous trade and the opening price of the next trade. From there, the line chart clearly shows the up or down trend of the currency pair.

Conclusion

Step by step learning and improving your forex trading knowledge through a variety of resources from beginner to advanced will help you go from a beginner to a professional trader. There are many useful programs that can help you at this stage: spread and profit calculator, currency converter pip calculator, market calendar, etc.

Fanara Filippo
Fanara Filippo
Hey, I’m Fanara Filippo. I’m a writer living in Vietnam. I have been trading forex for more than 5 years. You can read my articles about the best forex brokers on this page. Let’s review brokers today.

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