The Forex market is a global electronic network of banks, brokers, hedge funds and other investors. This market is where one currency is bought and sold against another for the purpose of making a profit. Central banks are also involved in the forex market as they are responsible for maintaining the value of their country's currency. This value is represented as the exchange rate at which it will trade in the open market.
Forex trading is the process of speculating on currency prices to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, an investor speculates on whether one currency will rise in value against another.
The value of a currency pair is affected by trade flows, economic, political and geopolitical events that affect forex supply and demand. This creates daily volatility that can present new opportunities to a forex trader. Online trading platforms provided by global brokers like FXTM mean you can buy and sell money from your phone, laptop, tablet or PC.
All currencies are assigned a three-letter code that closely resembles the stock's ticker symbol. Although there are more than 170 currencies worldwide, the US dollar is involved in the vast majority of forex trading, so it is particularly useful to know its code: USD. The second most popular currency in the Forex market is the Euro (code: EUR), which is the currency accepted in 19 countries in the European Union.
Other major currencies in order of popularity are: Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), Swiss Franc (CHF), and New Zealand Dollar (NZD). All forex trading is expressed as a combination of two exchanged currencies. The following seven currency pairs – known as the principal – make up about 75% of trading in the forex market:
A demo (or demo) account is an account where new traders can test strategies and learn how trading technology works without facing the risks associated with real markets. Users are trading with fake money and the demo account simulates what the returns on the real money account would be. High schools and colleges often use demo accounts to teach trading and compete against other schools in trading competitions.
Demo accounts are popular with stocks, currencies, and commodities traders, but not as useful for long-term focused investors. The longer it takes to make a profit on an investment, the less useful the demo account is because the demonstration takes time to combine the real money.
Like all other markets, foreign exchange prices are determined by the supply and demand of sellers and buyers. However, there are other macro forces in this market as well. Demand for certain currencies can also be affected by interest rates, central bank policy, economic growth rate, and the political environment in the country in question.
The Forex market is open 24 hours a day, five days a week, giving traders in this market an opportunity to react to news that may not affect the stock market much later. Since most currency trading focuses on speculation or hedging, it is important for investors to follow the dynamics that can cause sharp increases in currencies.