In forex trading, each currency has its own code to help you identify it more easily. If you’ve ever travelled abroad and exchanged your home currency for local currency, that’s a foreign exchange. Although forex trading can seem a little complicated at first, you might have already made your first trade without even realising it.

what is forex

​, which can help to hedge currency risk on both interest rates and exchange rates. See a full list of our current forex trading spreads and margins. Retail banks trade large volumes of currency on the interbank market. Banks exchange currencies between each other on behalf of large organisations, and also on behalf of their accounts.

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To trade the forex market with little awareness of the factors that influence the FX market can result in substantial losses. Many of the macroeconomic forces at play can have huge effects on the valuation of a currency. A bull market is on the rise, and a bear market is usually decreasing. However, losses are the other side of the coin, which DotBig is why traders must never invest more than they can afford to lose. A short position refers to a trader who sells a currency expecting its value to fall and plans to buy it back at a lower price. A short position is ‘closed’ once the trader buys back the asset . A long position means a trader has bought a currency expecting its value to rise.

  • Those who are interested in mathematics, data science, and pattern recognition may also find interest in technical analysis.
  • This action involves the buying and selling of currencies with the intention to make a profit.
  • If the release exceeds expectation, this can push up the price of the relevant assets.
  • Gaps are points in a market when there is a sharp movement up or down with little or no trading in between, resulting in a ‘gap’ in the normal price pattern.
  • When you are trading forex with margin, remember that your margin requirement will change depending on your broker, and how large your trade size is.

These signals can be determined by either manual or automated methods. Manual methods involve looking at chart patterns and averages to determine buy and sell opportunities. Automated methods use algorithms that determine trading signals and execute trades based on several pre-set conditions. Forex scalping can use either of these methods, where the aim of the trader is to enter and exit the market as quickly as possible, with the aim of making small Forex news but frequent profits. Foreign exchange rates between different currency pairs show the rates at which one currency will be exchanged for another. It plays a vital role in foreign trade and business as products or services bought in a foreign country must be paid for using that country’s currency. The value of a currency pair is influenced by trade flows, economic, political and geopolitical events which affect the supply and demand of forex.

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You may now be thinking back to the five trillion Dollars traded in the forex market compared to the 200 Billion Dollars traded in stocks mentioned previously. Both technical and fundamental analyses aim to predict future price movements based on the principles of supply and demand. A dividend is a sum of money – the greater your ownership, the more money you would receive. Stock market traders generally hold their positions for several days – Forex all the way up to months. For more information about the FXCM’s internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms’ Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here. FXCM offers a variety of webinar types, each designed to cater to your trading needs.

what is forex

Even though they are the most liquid markets in the world, forex trades are much more volatile than regular markets. Much like other instances in which they are used, bar charts are used to represent specific time periods for trading. Each bar https://www.investopedia.com/articles/forex/11/why-trade-forex.asp chart represents one day of trading and contains the opening price, highest price, lowest price, and closing price for a trade. A dash on the left is the day’s opening price, and a similar dash on the right represents the closing price.