Forex trading – what is forex trading
The most common currency pair to trade is the EURUSD, where the currency on the left is called the base currency and is the currency that he wants to buy or sell, while the other currency is called the secondary currency and is used to make the transaction.
Each currency pair has two different prices, the currency selling price and the buying price, and this difference between them is called the spread, which is the amount that the broker gets to open the position for trading, the higher the liquidity ratio, the narrower the price differences.
Prices are displayed in 4 numbers after the point, such as 1.2356 USD, where the change in price is shown in the fourth figure after the point, in the forex market, the differences, gains and losses are displayed in points.
Another term in the forex market is “short-term buying” which is the act of buying and selling respectively.
Some traders in the forex market call the term bullish market when the market is rising and this is incorrect, but the terms bullish market and bearish market are used to define the direction in which the market is heading.
Experienced traders in the market will be able to use their strategy in case the bullish market goes up and the bear market goes down, as this step enables them to speculate on the market movement correctly and make a lot of profits.
Despite this, losses are considered the other side of the currency, because the forex market is one of the highly volatile markets, so novice users are advised not to trade with large funds until they bear the size of the losses that may fall on them.
Open an online trading account and join AvaTrade to get the best trading experience.
Trading with leverage
It is some of the facilities provided by the broker to the investor in order to make him keep his deal for the largest possible time and thus it is one of the most opportunities to make profits. Profits and losses are determined by determining the size of the position, and although trading using leverage helps in increasing profits significantly, in a moment it may make you lose all your money.
What are the factors that affect the forex market?
Currency exchange rates in the forex market depend on several factors, such as the rate of supply and demand, political and economic stability and monetary policy of countries.
With regard to supply and demand in the forex market, the decisions of central banks and monetary policies taken by some countries represent the main driver in the market, in addition to the economic data issued by central banks and international financial institutions regarding unemployment rates, total spending, consumption and others.
Before these institutions start publishing their reports, investors expect what may happen in the market. In the event that their expectations exceed the issued data, the price of the asset will fall, and when the data and reports exceed their expectations, the price of the asset will rise.
As for other factors that may affect currency prices, are the news reports of each country, the positive of which plays a role in increasing the rate of demand for the currency of this country and thus the currency will rise. As for negative news, it will certainly weaken the demand for the currency and thus lower its price.
Market sentiment is one of the factors that may affect the movement and activity of the market. When investors anticipate that the currency will head to the downside, they will trade lower, reducing the demand for the currency and thus lowering its price.
Another important factor is a country’s credit rating, which is an independent assessment of the probability of that country’s debt repayment.
This means that any country with a high credit rating may witness an increase in the price of its currency, and conversely, any country with a low credit rating may witness a decrease in the price of its currency.
However, since forex trading is live, it is speculation that mainly affects price changes in the market.
If traders expect that for some reason or event a particular currency will strengthen or weaken, they will trade and change the price in the market, because the supply and demand for the destination currency will change within the market.
The more people expect the currency to move in a certain direction, the greater the effect on prices in the market.