What is Forex?
FOREX is also known as FX or Currency Market and commonly famous for FOREX TRADING. FX Trading is buying of one currency to another and Currencies are always traded in pairs. I.E – EUR/USD, GBP/USD, GBP/JPY
With the vast amount of traders Forex is the largest financial market in the world which has a turnover of $5 Trillion a day or more. This mammoth success in Forex had started to boom after the internet. Forex neither has a physical location nor a central exchange, the entire market run electronically within a network of banks. FX market runs continuously 24 Hours a day 5 Days a week which is considered as one of the best advantages for traders all over the globe. Also London is known as the heart of Forex since 80% of FX trading is done there. The FX Market starts from Sunday at 22:00 Hrs GMT & closes on Friday at 21:00 Hrs GMT.
What effects FX rates?
Forex prices are influenced by a multitude of different factors, from international trade or investment flows to economic or political conditions. This is what makes trading forex so interesting and exciting. High market liquidity means that prices can change rapidly in response to news and short-term events, creating multiple trading opportunities for retail forex traders.
Some of the key factors that influence forex prices are:
- Political and economic stability
- Monetary Policy
- Currency intervention
- Natural disasters (earthquakes, tsunamis etc)
All forex is quoted in terms of one currency versus another. Each currency pair has a ‘base’ currency and a ‘counter’ currency. The base currency is the currency on the left of the currency pair and the counter currency is on the right.
For example, in EUR/USD, EUR is the ‘base’ currency and USD the ‘counter’ currency. Forex price movements are triggered by currencies either appreciating in value (strengthening) or depreciating in value (weakening). If the price of EUR/USD for example was to fall, this would indicate that the counter currency (US dollars) was appreciating, whilst the base currency (Euros) was depreciating.
When trading forex prices, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency. Alternatively, you would sell a currency pair if you believed that the base currency will weaken in value against the counter currency. Some examples of major currency pairs are:
- EUR/USD (The value of 1 EUR expressed in US dollars)
- USD/CHF (The value of 1 USD expressed in Swiss francs)
The difference in the BID/ASK of the currency pair is referred to as the ‘spread’. An example would be EUR/USD dealing at 1.4700/1.14703 (in this case the spread is 3 pips). The exceptions to this are the JPY pairs which are quoted to just 2 decimal places. A USD/JPY price of 96.41/96.44 displays a 3 pip spread.
Pips (Percentage in Points)
Pip stands for Percentage in Points. PIP is considered as the minimum price change in a currency pair. Most of our currency pairs are quoted to 5 decimal places with the change from the 4th decimal place (0.0001) in price commonly referred to as a ‘pip’. For example, if the price of the EUR/USD forex pair moved from 1.13700 to 1.13720, it is said to have climbed by 20 pips.
Foreign exchange is a leveraged (or margined) product, which means that you are only required to deposit a small percentage of the full value of your position to place a forex trade. This means that the potential for profit, or loss, from an initial capital outlay is significantly higher than in traditional trading. AXNFX provides a standard leverage of 1:400 for all the clients.