Forex trading is one of the largest financial markets in the world. According to recent financial survey foreign exchange market has increased its average daily turnover from $4 billion to $5.3 billion in 2013. But, the famous stock exchange New York Stock Exchange (NYSE) has average daily turnover of only $30 billion. Here I am providing you a basic introduction to Forex trading.
Forex market is open 24 hours per day from Monday to Thursday and is closed in the Friday evening to Sunday evening in each week. The Forex trading is scheduled in three sessions based on time differences in the three main continents in which currency trading takes place viz. Asia, North America and Europe. Even these sessions overlap; the most popular currencies are traded efficiently according to location. If a forex trader finds the right open market then he can place the order overnight.
According to economical survey, US Dollar is the most traded currency in the world having 43% share by volume in the market. The second most traded currency is Euro having nearly 16% market share. So, it is obvious that the most traded currency pair is EUR/USD. Other foreign currency pairs are British pound and US dollar (GBP/USD), Japanese Yen and US dollar (JPY/USD), etc.
As the stock prices changes continuously, the exchange rates also changes and so Forex trading is done based on various factors. One currency always moves up and down continuously against another currency. If a Dollar is weak on some day and Pound is strong, the dollar slips against the pound. But, this does not mean that US dollar will fall against all other currencies in that session.
Consider one example. If US dollar falls due to bad US employment report and British pound rises due greater FDI then USD falls against EUR. But, it can fall against other currencies only when they experience weakness. This means that it is not always true that specific currency in the Forex trading session experience fall or rise against every other currency.
As you are beginner it is important to know about how to read Forex prices. Forex prices are indicated as currency pairs and it can be confusing for the beginners. This price is not indicated like a single price of a stock, these rates are indicated in two different numbers. We consider one example. Let we are trading British Pound against US Dollar. The rates available for this pair will be in the form 1.7600-10. The first number will be the base currency and this will be the price at which forex trader will buy the British Pound. In our example the rate is $1.7600. On the other side of the deal the seller will will take part in the deal with one British Pound at the rate of $1.7600. The right hand side of that two digit code is the offer rate i.e. the seller is willing to buy $1.7600 for one British Dollar he will sell.
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