What Does Forex Trading Mean? (In Simple Terms)
The Answer: What Does Forex Trading mean in the Financial Markets?
When you come across offers to make money trading in the financial markets online that tell you it is possible to make a lot of money or even become wealthy money trading forex, you probably have the question what does forex trading mean?
Not many people realize the massive potential of making money on the stock exchange especially in the Forex markets, and those that have some idea consider it to be risky and an extremely complicated process. When brokers, bankers and large corporations are trading on the Forex markets, they are buying one currency, and selling another at the same time. Buying and selling currencies are done while their rates are fluctuating, buying low, and selling high.
The simple answer to what does forex trading mean then, is where currencies are traded in pairs, like EUR/USD or USD/JPY. The exchange rate of these country currencies represents the purchase price between the two currencies… To determine the direction of currencies, many factors are taken into consideration of a particular country’s economy, ranging from employment figures to growth, import and export supply and demand and many others which are called fundamentals.
The Definition & Art of Forex Trading:
“In Forex trading, the goal of making the exchange is to hold it until the value increases or decreases and then exchange it back in order to achieve the desired profit. Forex trading is considered as a very popular form of investment thanks to the so called “leverage” that’s offered to traders, which can range anywhere from 20:1 to 400:1″
Below are a summary of what fundamentals are used for Profitable Forex trading:
The Supply and Demand:
Like all assets in the financial markets, the Foreign Exchange sector which incidentally is the largest sector of the financial market is affected by the changes in supply and demand. For example: when there is a bigger demand for dollars, then the dollar increases its value in the markets. When traders are selling off a currency because they are worried of the value decreasing the currency will drop because no one wants it…
Country Interest Rates :
The interest rates that the central or reserve banks of a particular country charges; influences the value of the currency of that country. Investors like higher returns on their money and will place investments where the economies are stable and have sound interest rates. This will cause the currency value to increase because investors are buying it…
For example, if the Federal Reserve Bank of the United States raises their interest rates, then the value of the US dollar will go up, and on the flip sides this will cause the currency pair EUR/USD, or GBP/USD to drop. On the other hand let’s speculate that the European Central Bank also raises their interest rates, and employment figures are favorable. This will cause the value of the Euro to increase, causing the EUR/USD or GBP/ USD to rise.
Trading Currency Pairs :
By now you should have a better understanding of what does forex trading mean so we will continue explanations of the way currencies are traded
In the examples above regarding interest rates affecting currencies you will see that trading in the Foreign Exchange market; these currencies are all traded in pairs. Fundamentals as explained will affect whether one currency pair either rises or falls in comparison to the other. In the forex market you will further note that every currency has a 3-letter abbreviation, and the first currency of the pair is the base currency.
The currency prices at any given time will indicate how much of the base currency is needed to exchange for the currency it is being traded against. For instance like in the examples shown above, if the Euro currency increases in value then the EUR/USD price will also increase, because it would mean that buying Euro would cost more in US dollars.
Seeking Education to Understand What Does Forex Trading Mean?
Now that the internet has made it possible for everyone to manage their own investments almost all trading platforms will provide you with full education and answers to what does forex trading mean, offer you trading with forex, commodities or any assets you feel comfortable with.
It is vital to learn how to trade sensibly and this is why demo accounts are important for new traders because you are still trading live in the financial markets.
There is always a risk to trading, but traders make this a calculated risk using all the data freely available online at financial sites, using traders insights, forex signals, professional tips, trading forums and many other fundamentals.
Can I Make Money Trading Forex Online??
Once you have educated yourself on how the markets work, traded with your demo account, and have investigated proper forex trading strategies to work out a sound plan to increase your investments, you are ready to start trading with your own money.
What Does Forex Trading Mean? Click Below to Open a FREE Demo Account and Learn More!
Licensed registered trading accounts offer protection for new traders in risk free trades in binary options trading, with guides, live support and training for inexperienced traders.
Take time to get comfortable with everything and once you have used all these resources to master trading forex, you can take investing to the next level and with a proper plan, profit handsomely enough to even trade on the Forex markets full time.
Make Extra Money Trading Forex the Easy way!
Profiting in Forex trading is what everybody’s dreaming of but unfortunately it’s tough to do so in a consistent way. Some will just trade occasionally to make some extra cash on the side, following calculated trends that could be sure things like what happened with the drop of the Pound/Dollar in Brexit where many made their fortunes trading the USD/GBP
What Does Forex Trading Mean Using Trends?
Traders follow trends even using historical trends from way back to set trades and more often than not currencies follow similar trends. Smart traders have an idea what happens during political issues, when there are disasters, shortages or even war. They will use these trends to set profitable trades accordingly. Let’s take a look at these trends:
- Market Uptrends
Market or currencies uptrend describe the price movement when the overall direction of a currency is upward, and there are factors/fundamentals that are stabilizing the currency to maintain an upward trend. Professional traders watch for these upward trends like a hawk and set trades to profit from this until it converses.
- Downtrends Trends
Downward trends are the movement of the prices when the overall direction is pushing downward. Many traders will avoid these downtrends because they can drastically affect the value of the investment. That is to say there will be a selling of the currency for examples because trades know that it is losing value.
- Sideways Trends
Many stable country currencies do not have many fluctuations and what happens is that you will experience sideway trends or horizontal price movement that often occurs when the forces of supply and demand are nearly equal.
Using Trend lines, Fundamentals and Market Data
Traders use charts to follow trends and will narrow down their trades using trends from historical to current according to the financial data. Following trends shows them when to set trades and stop losses, take profits and close trades at the best possible times. Currencies trends can be mapped in channels on graphs and traders will be able to indentify highs historical and possible upwards downwards or little changing trends like sideways trends as mentioned above.
I hope this gave you enough insight and answers to what does forex trading mean so that you can also join the revolution to making money online with forex and managing your own investments rather than leaving it in the hands of banks.