Thanks to the Internet, thousands of individual traders all over the world are discovering possibilities, excitement, and challenges of online trading in the Forex market. Yet in contrast to the stock market, the Forex market somehow remains more elusive and seemingly complicated to newcomers. This article will help you to revise the complex Forex market mechanics in simple terms and make you feel familiar with the basic concepts.
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What is Forex?
Forex (FX) is the foreign exchange market where currencies are traded. For example, you transfer your local currency to another one for an upcoming holiday abroad. This is called a transaction. Just imagine, every day over $5 billion USD is whirling in the market, traded by governments, banks, corporations, and speculators.
You may ask, why learning the market structure if it is all too far from your everyday life? You will be surprised: once you start trading, you are a market participant, too and also affect it. Of course, the impact is measured by the money investment amount. Billion-dollar hedge funds and investment banks affect the market much more intensively than private traders with a few thousand dollars in action.
Currencies are traded as pairs, and the movement of currency pairs measures the value of one currency against another. For instance, the EUR/USD currency pair measures the value of the Euro against the US dollar. When the value of the pair increases, this means the value of the EUR has increased against the value of the USD. When the value of the pair decreases, this means the value of the EURO has fallen. These are the changes in the Forex market that traders usually make a profit of.