Forex Trading

The term “forex” is a mesh of the words “foreign” and “exchange” which means the exchange of foreign currencies against each other.

The global forex markets open on Sunday evening (23:00 GMT) with the Australian market and remain active until the U.S. markets close on Friday (21:00 GMT), giving forex traders the ability to trade in the forex markets 24 hours a day, five days a week.

Currency pairs are commonly grouped as majors, minors, and exotics. Major currency pairs typically contain USD and another major currency, for example; EUR/USD, GBP/USD, USD/JPY, and USD/CAD. Minor currency pairs, also known as cross-pairs, consist of two major currencies which are not the USD. For example, EUR/GBP, GBP/CHF, and CAD/JPY are among minor currency pairs. Any other currency pairs which contain at least one non-major currency are considered as exotics. For example, USD/MXN, EUR/TRY, and GBP/SAR.

The logic of supply and demand determines the price of a currency pair. When investors buy and sell currencies against each other for any reason (e.g., international trade, investing in countries, cross-border payments), they subjectively and collectively attribute value to the currency pair. Investors’ trading decisions are often based on their expectations, more so than what actually happens.

Forex markets are not governed by a central supervision authority. However, each country’s central bank can influence the price of its national currency. They use economic measures such as interest rates to maintain a minimum value, thereby influencing market prices.

Leverage is a trading mechanism which enables you to open trading positions larger than your initial capital. When using leverage, you’re able to open larger position sizes; therefore, the amount you gain or lose per pip movement increases. It can increase your profit potential; but use it with caution, as it can also cause losses in the same way.

The pip signifies the most basic price change unit. In forex currency pairs, a pip is the fourth decimal in the price of a currency pair. For example, when the EUR/USD currency pair is trading at 1.1856, pip is the “6” at the end (the fourth decimal). If EUR/USD rises to 1.1860, the new pip would be “0”, and the pair would be said to have risen 4 pips.

Spread is the difference between the selling price and the buying price of a currency pair. In Forex trading platforms, each pair would have two prices: Bid is the selling price and Ask is the buying price. Spread is calculated in pips and represents the broker’s commission. It is charged automatically when a position is opened. As a forex broker, part of the profit which AFXMarkets makes is based on the spreads from traders’ transactions.

At AFXMarkets, we are committed to ensuring our clients are equipped with everything they need for success by providing them with the best forex trading tools available. Visit our education section to learn what circumstances move currency prices, use our trader’s toolkit to analyse the forex market, and execute your trades on our state-of-the-art trading platforms with the most competitive trading conditions.