Many people will have heard the term ‘Forex’ but may not be aware of what it means. ‘Forex’ is a short name for ‘foreign exchange’. This is where different currencies are traded, and it is one of the largest trading markets in the world. It is estimated that the equivalent of $4 trillion is traded each and every day, and anyone can take part.
The aim is to buy a currency and then sell it when you can get a higher price for it so that you are making a profit. Some people can find it confusing because currencies are determined by their value to each other. When venturing into Forex trading, you will see that currencies are traded in pairs such as EUR/GBP, but many others can be traded too. These are referred to as ‘exotics’, and include the Polish and Norwegian currencies. These are not traded as often, so the market is not as liquid.
What is “spread”?
You will hear the word ‘spread’ used. When referring to a forex pair, this includes the selling bid price and the buyer offer price. It is important to remember which way round the currencies are being traded for each pair. If you are buying, the spread will show that you are purchasing the first named currency with the second one, so for USD/GBP, you are using British pounds to buy US dollars. If you are selling, then you are selling the first-named currency in the pair to obtain the second-named currency.
Forex trading is considered to be an easy way for anyone to get into trading, but it is critical to research as much as possible before risking any money. A good understanding of the currency market is needed, although there are plenty of systems out there that let you operate ‘dummy’ accounts, so you can learn without risking your own money.