Trading Academy

Lesson 1

What is Forex

“Forex” is an abbreviation for foreign exchange and it can be defined as the exchange or trading of currencies. Market participants can buy and sell the currency of almost any country against another.

All foreign exchange transactions involve two currencies, for example the EUR/USD (Euro/Dollars) pair. Its exchange rate is in continuous fluctuation, and that fluctuation is at the very heart of currency trading.

If you think the Euro is going to rise versus the U.S. Dollar, then you would buy EUR/USD. Conversely, if you think its value will depreciate, then you would sell EUR/USD. This sums up the basic mechanism of currency trading.

A Forex transaction involves everything from the simple currency transactions that tourists often make when travelling, to the multi-billion dollar transactions executed by large corporations, financial institutions and governments.

Features and advantages of the Forex Market:

  • High Liquidity: the Forex market is the largest financial market in the world, with over $5.3 trillion traded daily. 
  • Omnipresence: There is no centralized trading exchange, and all trading is conducted through electronic communication networks in various markets around the world.
  • Round the clock trading: Forex is a market that never sleeps, trading for 24 hours, 5 days a week.
  • Flexibility: unlike stocks which you generally have to buy, as a forex trader you can profit in rising as well as in falling markets.
  • Low barrier entry: thresholds for minimum capital requirements are very low, since favorable leverage is offered by most brokers.

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