A Guide to Trading Forex Online

Online forex trading, or foreign exchange trading, is the process of exchanging one currency to another for a number of reasons, usually for commerce, trading, or tourism.

Most forex trading is undertaken to earn a profit. The amount of currency converted on a daily basis can make some currencies very volatile. This volatility makes forex attractive to traders as it provides the opportunity to earn high profits, while also increasing the risk.

When you start trading forex online, you will find that discover there’s a wide range of different currency pairs to trade 24 hours a day.

Read on to find out all about trading forex online, forex CFDs, and how to get started.

What is forex?

Forex, FX, or foreign exchange is considered the largest market worldwide. The forex market is a decentralised market where online forex trading takes place over the counter (OTC) electronically rather than on one central location. Most transactions occur for speculative reasons. So basically, traders buy CFDs on currency pairs and hope that their value will increase so they can sell them at a higher price later to make a profit.

The biggest financial centres include Sydney, Singapore, Hong Kong, London, New York, Frankfurt, Tokyo and New Zealand. Due to different time zones around the world, when the market closes in one financial centre, it opens in another. Therefore, there are always buyers and sellers, making it the most liquid and actively traded global market with a daily trading volume of $6.6 trillion.

Forex trading

Forex trading involves buying one currency while selling another at the same time. Traders trade on currencies through online forex brokers. Currencies are quoted in relation to another currency.

Currency pairs

There are three main types of currency pairs. These include the following:

Major currency pairs

The currencies that trade the most volume against the US dollar are known as the major currencies and include EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD and USD/CAD.

A widely traded currency pair is the EUR/USD and it is the most liquid currency pair in the world as it is the most commonly traded.

Minor currency pairs

Minor currencies or crosses refer to currency pairs that do not include the US dollar. These pairs have wider pairs and are not as liquid as major pairs. Examples include the EUR/GBP, GBP/JPY and EUR/CHF.

Exotic currency pairs

Exotic currency pairs refer to currencies from emerging markets. These pairs include a major currency and a currency from a developing market.

Exotic currency pairs are not traded as often compared to major and minor pairs. Therefore, these pairs are less liquid and the spreads are much wider.

Many online forex brokers provide many different currency pairs, so traders usually have lots of options to choose from the best forex brokers.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication

Location: United Kingdom

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