What Does Forex Trading Really Mean?

September 2, 2021 Tom Clark | Comments Off

Many of you might have heard of the word ‘Forex’ especially when it comes to money matters and online earning. Forex generally means foreign exchange of currencies or trading one currency to another. For instance, if you are visiting a foreign country as a tourist, you need to exchange your home currency into the currency of the country you are visiting. This is because the currency in your home country will not be accepted by other nations unless you change it into their own money. Nowadays, it is easier to trade Forex, thanks to online trading platforms like MetaTrader 4 which has opened the doors to retail and individual traders.

All About the Foreign Exchange Market

The Forex market or the Foreign Exchange Market is considered to be the biggest financial market and the most liquid as well with more than $5 trillion worth of transactions every day. But unlike other markets, the foreign exchange market isn’t centralized and transactions are made over-the-counter. Because it is decentralized, the spot market remains open for twenty fours hours every day and the closing days are only during weekends.

Another very important advantage attributed to the Forex market is its availability of factors that affect the exchange rate, leaving room for boundless possibilities to speculate in the market through the use of different strategies.

How To Determine the Value of Currencies

Free economies value their currencies through the market forces which in turn are being determined by their supply and demand. The stronger demand there is in a currency, the higher the price can go. There are several factors that contribute to these market forces such as trade, investment, geopolitical risks, and tourism. For instance, if a foreign company wants to have business cooperation with some local companies, the first thing they should do is to exchange their money for the domestic money of the country they want to do business with.

The Significance of the Forex Market

As mentioned above and in almost every article, the Forex market is considered the largest and also the most liquid market in the world, with almost all currencies being traded on it. The growth of the market has significantly increased thanks to the involvement of online trading platforms. Traders started to use MetaTrader 4 trading platform because it offers convenience when joining the market and also offers leverage which is a totally great tool for small-time traders and investors.

Popular Currency Pairs

The most popular currency in the financial market is none other than the United States Dollar (USD). It is sometimes called “buck”, “greenback”, “long green” and so much more. This currency is responsible for about 87% of trades in the market. This is followed by the Euro with more than 33% of trades. The third most popular currency belongs to the Japanese yen which more than 23% of trades have attributed to it since 2013. The third is the British pound which ranks fourth on the most traded currency in the market.