Foreign exchange trading, also known as forex trading, currency trading, or FX trading, allows traders to take advantage of the difference in value between global currencies. This exchange rate is always fluctuating and influenced by a range of economic factors, including global trade, domestic politics, and central bank policies.
Foreign exchange is usually handled in pairs, with a “base currency” traded against a “quote currency”. For example, AUD/USD. Foreign exchange traders buy one currency and sell the other, depending on how they think the two currencies will change in relative value over time.
How does forex trading work?
In a typical trade scenario, the trader speculates that the price of one currency will rise or fall relative to the price of another currency. A position is opened in anticipation of this bias, with a trade executed without physical delivery of the underlying currency. If the price moves as expected, you will profit from the trade. If it doesn’t, you will lose money.
You can use leverage to increase your buying power in FX trading, which increases your potential gains but also magnifies your potential losses. For example, at EverForex, if you choose 1:100 as your leverage, you can use a $100 deposit to trade $10000 worth of currency.
Forex market vs stock market
The FX market offers numerous advantages over other financial markets, including around-the-clock operation, high fund liquidity, and extremely open and transparent market conditions. FX is highly popular among individual traders and organisations who want to speculate or hedge currency risks.
By contrast, the stock market has shorter opening times and a smaller market size. Perhaps the biggest difference, however, is that forex allows traders to profit from both buying and selling. By contrast, the stock market is often seen as a buyer’s market, with short selling not encouraged under the overseeing legal framework.
Why trade the forex market with EverForex?
- Take a long or short position on over 40 currency pairs, with no restrictions on holding time
- Benefit from tight spread as low as 0.0 pips
- 24/5 trading availability
- Profit from the smallest movements in the exchange rate using leverage
- Mini and micro trading available through the Meta-Trader 5 trading platform
- Extremely low start-up cost