Forex is a decentralized market with no single location. It operates 24 hours a day, 5 days a week. The Forex trading day is a sum of three 8-hour trading sessions. The day starts with a session in Asia – 00:00 to 08:00 GMT, from 8:00 to 16:00 GMT is a session in London and all ends with a session in North America from 16:00 to 24:00 GMT. Thanks to that, Forex trading is available for traders all over the world.
Forex market is the biggest and most liquid market in the world with the daily volumes of 5 trillion US dollars. Thank that you can enter and exit the market with low costs and whenever you want – there’s always enough liquidity for you to find a counterparty for your transaction. Additionally, Forex also offers constant volatility in every timeframe which combined with high leverage offers almost endless trading opportunities.
Forex instruments are presented in pairs, as each operation on currencies actually includes both buying and selling. The base currency is the first currency in the pair while the second one is called quoted currency. In the EURUSD currency pair, EUR is the base currency whereas USD is a quoted currency. Exchange rate of currency pair tells you how many units of a quoted currency you need to pay in order to get 1 unit of a base currency. For example, the EURUSD exchange rate of 1.15 says, that in order to get 1 EUR you need to pay 1.15 USD. An exchange rate of GBPCHF of 1.26 says, that 1 GBP is worth 1.26 Swiss francs.
Placing an order to buy EURUSD currency pair actually means buying Euros for US dollars, that is buying Euros and selling US dollars. In order to make a profit on such a transaction, you wait for the Euro to strengthen against the US dollar and then you place a sell order to close the transaction. This is called a ‘round turn’ and means the complete process of buying and selling a currency pair. Buying EURUSD is also called going long on EURUSD. Profit on such a trade is booked when the EURUSD rate goes up – in other words when the closing price of the transaction is higher than the opening price.
A sell order on the EURUSD currency pair is the opposite of a buy order and means selling Euros for buying US Dollars. In order to make a profit selling EURUSD exchange rate of the currency pair has to go down. Then, the closing price will be lower than that opening price and you as a trader book profit from the transaction. Selling EURUSD is also called going short or shorting EURUSD.
Forex trading units
A standard contract in Forex trading is 1 lot which represents 100,000 units of the base currency. Forex trading platforms are technologically advanced while still user-friendly offering flexibility in setting any market position you want. For example, you don’t need to trade exactly 1 lot or its multiple – you can trade 1.15 lot or 1.67 lot. Mini-lots 0.1 and micro-lots 0.01 are also available. If you start with a smaller deposit you may be interested in positions as small as 0.15 or 0.25 lot. No other market in the world offers you such a precise scaling of your trading position as Forex does.
Advantages of Forex trading
If you compare the Forex market to any other financial market in the world you will realise that it’s by far the most attractive market for the global trading community. First of all, the Forex market offers 24/5 trading which means you can enter and exit the market whenever you want, not having to wait until the morning opening bell of stock exchanges. What’s more, liquidity on the Forex market is almost infinite thanks to which there’s always a counterparty of your trade and the transaction costs are much lower than in any other market in the world.
Moreover, Forex trading offers probably the highest leverage in the world resulting in extraordinary trading opportunities and successful Forex traders earning rates of returns counted in hundreds of per cent in a short period of time. For example, Forex leverage of 1:100 multiplies funds on your trading account by 100. In other words, while having 5,000 USD on your trading account and operating with 1:100 leverage, you’re gonna be able to open market positions amounting to 500,000 USD. You can only imagine how big your trades in a couple of seconds, you’re a swing trader, keeping the position open for a couple of days or a trend follower, sticking to the position for months or algo trader having your trading system automated – there’s enough place for every trader on the Forex market.