For Beginners: What Is Forex Trading?

Forex trading is the buying of one currency while selling another.

The foreign exchange market is one of the most widely traded markets in the world, with an average daily trading volume of more than $5 trillion. It is one of the largest and most liquid financial markets in the world, where different currencies are exchanged without interruption as individuals, companies, and organizations conduct their global business. The Forex market has no centralized location or exchange, so trading is available 24 hours a day, from Sunday night to Friday night.

Forex trading allows you to take advantage of the exchange rate fluctuations of a large number of foreign currency pairs. Forex is usually traded in pairs - for example, GBP/USD. You speculate that the price of one country's currency will go up or down against another country's currency, and open positions accordingly.

Base Currency and Relative Currency

Using the GBP/USD currency pair as an example, the first currency, GBP, is called the “base currency” and the second currency, USD, is called the “quote currency”. In short, it means how much quote currency is required to buy 1 unit of the base currency.

How does Forex trading work？

When trading Forex, you usually speculate whether the price of the base currency pair will go up or down against the currency. So, in the GBP/USD pair, if you think the pound will go up against the dollar, you go long (buy) the pair. Conversely, if you think the pound will fall against the dollar (or the dollar will rise against the pound), then go short (sell) the pair.

If you are right (i.e., you are long on GBP/USD and the value of the pound rises against the dollar), you will make a profit. But if the trade goes against you, you will lose money.

You can use leverage for forex trading, which increases your potential gain but also increases your potential loss.

What is margin or leverage？

Since Forex trading is margin trading, you only need to deposit a certain percentage of the total amount you want to trade. Our margin rates are as low as 0.20%, which can also be considered 500:1 leverage, meaning that the overall position will be worth 500 times the value of the money you are required to deposit to begin trading. When trading on margin, please keep in mind that your profit or loss is based on the total value of the position, not the portion of the funds you deposited, so you may lose more than the funds you initially deposited.

Start your free Forex course provided by WikiFX here https://www.wikifx.com/en/education/education.html to equip yourself with the required knowledge to be a successful FX trader.

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