Introduction to Forex

All trading involves risk.
It is possible to lose all your capital.

What is Forex?

  • Forex or FX is an acronym for FOReign EXchange.

  • The FX market is the market where you can trade currencies.
  • It is an over-the-counter market. It is a decentralized market with no actual central exchange.
  • It is open 24 hours a day, 5 days a week. (It is closed only on weekends).
  • It is the world’s BIGGEST MARKET.

Start trading with the IronFX introduction to forex eBook

Who trades Forex?

Governments and Central banks

Intervening in the market to strengthen/weaken their currency.

Banks and other Financial institutions

People who need foreign currency for small-scale transactions deal with local banks.

Corporations

repatriating profits. A Japanese company that operates in US as well, has to change its dollar profits back to the Japanese currency when repatriating.

Investors

buying assets in foreign countries. A European investor wants to buy shares of an Australian company. He has to buy the Australian currency before buying the shares.

Speculators

Speculation is the practice of engaging in risky financial transactions in an attempt to profit from short-term fluctuations in the market value of a tradable financial instrument.

Tourists

visiting other countries

All trading involves risk.
It is possible to lose all your capital.

Currencies

The currency of the US is the US dollar. In Eurozone, we have the euro, which is shared among 19 of the 28 EU member states. The UK has the pound, Japan the yen etc.

 

The International Organization for Standardization (ISO) has determined standard abbreviations for currencies.

Trade on various currencies including the US dollar and the euro.

How are currencies traded?

  • The idea is more or less the same as buying stocks.
  • You buy a share of a company if you think the company is doing well and its share will increase in value.
  • In FX, instead of buying shares of companies, you buy “shares” of countries with the same logic, i.e. currencies.
  • If you believe that the economy of a specific country is doing well, you expect its currency to appreciate and therefore, you buy it.
When you buy American shares, you use dollars. When you buy European equities, you use euros. You need money to buy something, even stocks.
How do you buy money?
Again with money of course. You can buy euros with pounds, dollars with yens, yens with Australian dollars.
You’ve probably done an FX transaction yourself, when you’ve been to a country that uses a different currency than your country.

When you buy a currency, you
simultaneously sell another currency

All trading involves risk.
It is possible to lose all your capital.

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