Defining the Basics of Forex

For those who are unfamiliar with Forex (foreign exchange market), learning the basics can seem rather difficult at first. The fact is, however, Forex does not need to be confusing, so long as you outline some of the major key factors regarding what it is.

What is Forex?

Put simply, Forex is a global, decentralized financial market that is utilized to trade currencies, and is one of the largest trading markets in the world. In the foreign exchange market, currencies are traded against one another. While Forex is used by many people simply to trade one currency for another, others utilize it in similar ways to stocks, attempting to predict movements in exchange rates and to trade accordingly. Even a small fluctuation in currency rates can be enough for one to make a good deal of profit from trading.

Going Long or Short, Pips

Like any market, Forex users have their own terminology. “Going long” or “going short” refer to two different methods of currency trading. Someone who is “going long” will purchase a currency pair in hopes that its price will rise so that it can be sold later at a higher value. “Going short” refers to selling a currency because it is expected to fall, only to go back later to purchase it when it has reached a lower price. Understanding these techniques is a crucial part of forex capital markets. Continuing with lingo, a “pip” is terminology for a change of 1/100th of a point in the price of a given currency. Pips can be used for leverage in trading, and those hold a good deal of value for anyone who trades on a regular basis.

Brokers and Commissions

Just like with the stock market, brokers can be used when trading via Forex in order to guide decisions regarding which currencies should be traded, and in what scenarios. The downside to using a broker is that it is necessary to pay them a commission. In the end, however, brokers can make the Forex trading process far more streamlined, and can protect someone who is not well-versed in Forex from making a costly mistake.

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