What is Forex? Know the Forex market.
Do you know the Forex market? Sure, you’ve heard the name Forex many times before, but you may not know exactly what Forex is and how it works. Follow Zand Traders in this article. We bring you everything you need to know about Forex.
Introducing the Forex market.
The Forex market is the largest financial market in the world and is open 24 hours a day and has the maximum daily trading volume.
The word Forex is a combination of two words Foreign Exchange and means currency exchanges. In this market, you can exchange different types of currency and make a profit this way. In addition, this exchange of currency can be through the purchase and sale of various goods or services and so on.
How are Forex trades done?
Forex trading is similar to buying and selling other types of securities, such as stocks, except that Forex trades are done in pairs, for example one currency against another currency, such as EUR / USD (Euro/ US Dollar) or JPY / GBP (Japanese Yen / British Pound).
When you trade in Forex, you are actually selling one currency and buying another currency, and if the purchased currency increases against the currency you sold, you make a profit.
In the following, we will introduce you the main concept of Forex trading by giving an example.
Suppose the exchange rate between the Euro and the US Dollar is 1.40 to 1. If you buy 1000 euros, you will pay 1400 US dollars. If the exchange rate later reaches 1.50 to 1, you can sell the euro for $ 1,500 and make a profit of $ 100.
How is the rate determined in the Forex market?
We said earlier that in the Forex market, trades are based on currency pairs, which have a certain rate, and this rate is determined based on a number of factors.
For example, the exchange rate depends on the political situation and the economic situation of countries. For this reason, these rates are constantly changing under these conditions, and successful operation in the Forex market also requires the use of technical analysis and fundamental analysis skills.
Factors influencing the determination of rates in the Forex market.
As mentioned, political and economic factors influence the rate.
For example, inflation, unemployment, production and employment, bank interest rates, war, sanctions against a country, and …, can affect the exchange rate of that country.
So when you want to make a technical analysis of a currency pair, you need to focus on the political and economic issues that affect the currency pair that you intend to trade in the Forex market.
What is the trading volume of the Forex market?
According to statistics, an average of $ 6.6 trillion is traded daily in the Forex currency market. The Forex market is the largest financial market in the world in terms of trading volume, liquidity and value.
What kind of people trade in the Forex market?
Most Forex traders are: financial institutions, investment managers, multinational corporations as well as commercial banks and…. In addition, Forex trading accounts for only 5.5% of the total Forex market worldwide.
What is a Forex Session in the Forex Trading Market?
Although we have said that the Forex market is open 24 hours a day, the trading volume is not the same 24 hours a day, and depending on the geographical area in which it is located, it is closed 24 hours a day. , While elsewhere in the world people are trading Forex. Even in some hours Forex trading is associated with high risk.
In order to know the right hours to trade in Forex, it is necessary to know the concept of trading sessions and get acquainted with the types of trading sessions in the Forex market.
Familiarity with different types of trading sessions in the Forex market.
In general, the Forex market is divided into three trading segments, which are:
US Market: Open at 4:30 pm and closed at 9pm.
European Market: Open at 8 am and closed at 4:30 pm.
Asia Market: Open at 00:00 in the morning and closed at 8 am.
What is certain is that when these three trading segments overlap in their operating hours, the trading volume is maximized and the main events in the market take place at those times.
What does leverage mean in the Forex market?
Totally, leverage in the Forex market is borrowing a certain amount of money needed to invest. In the Forex market, this money is usually borrowed from a broker.
-Leverage is the use of borrowed funds to increase their trading position beyond their current cash balance.
-Brokerage accounts allow the use of leverage through margin trading, where the broker secures the borrowed funds.
-Forex traders often use leverage to make relatively small price changes in the currency pair to make a profit.
But keep in mind that leverage is as risky as it can be attractive. We will talk about those points in the following.
How having leverage increases the risk of investing in Forex?
Investing in financial markets will not be profitable in the first place, and there is no guarantee that you will make a profit from the beginning.
So using leverage when your account is in profit is great. But you should also keep in mind that you may also be at a loss, in which case your account may be called margin, meaning that your broker will confiscate your entire balance to make up for the loss.
So before taking any action that is high risk, you need to have complete control over the trading tools.
Forex trades are done in CFD. Have you ever heard of CFD? Stay tuned to learn more about CFD Forex trading.
What are CFD trades?
A CFD or contract for difference is a type of contract between a buyer and a seller that stipulates that the buyer must pay the seller the difference between the present value of the asset and its value at the time of the future contract. CFDs are provided for traders and investors to benefit from price changes without much investment.
In fact, in CFD transactions, you buy the value of a commodity and borrow this value from its owner until the due date, and return that amount at the maturity of the contract.
Now if the value of that commodity has increased on the due date, you will both repay your debt and make a profit.
Futures trading is also a type of CFD trading. In this type of transaction, you can trade the goods or value at a specific price on a certain date in the future, and on the due date of the contract, that amount will be paid at the current rate.
The difference between futures trading and CFD trades is that in futures trading you have to return the value you got at the current rate.
How Future trades work?
To better understand futures trading, we have explained this type of trading with an example.
Suppose you buy 8 pieces of one type of product on a certain date at a price of 2 million Tomans per piece. On the due date of the contract, if the price of that product has increased from 2 million Tomans to 4 million Tomans, you need to return 8 of those goods at the price of 4 million Tomans each, or the amount at the price of that product. Pay as added as a loss.
What are the advantages and disadvantages of CFD trading?
Read this part of the article carefully to get acquainted with the advantages of CFD trading.
Advantages of CFD Trading.
-In these transactions, leverage can be used.
-No tax is paid because only values are bought and sold.
-The market is two-way, both buying and selling.
-Transactions do not have a maturity.
Disadvantages of CFDs.
-Due to leverage, the risk of these transactions is higher.
-There is no physical ownership in this type of transaction.
-There is no need to pay bank interest when transactions are open.
In this part of the article, we have introduced you to some of the most important and practical terms and types of Forex trading. Stay tuned to learn more terms in this huge global market.
What does Spread mean in Forex market?
In the Forex market, when you buy and sell, you usually see that currency pairs are shown at two different rates. These two numbers indicate the purchase price and the selling price of the currency pair, which are slightly different from each other. The difference between these two rates is called the spread.
Spread is different for different currency pairs. In addition, depending on the type of broker in the Forex market, the amount of spread may vary. Spread also increases during hours when trading volume is low.
Now that you are somewhat familiar with Forex and the types of trades in this market, you may want to invest in this market, but do not know exactly where to start. In the following, we have briefly addressed this issue. Stay with us.
Where do we start to trade Forex?
If you are interested in investing in the Forex market and are interested in trading in this market, you need to know that to get started you need to choose a suitable broker.
As you know, brokers are the same intermediaries that at first it may seem a little simple to choose this intermediary. But did you know that the type of broker can affect your performance in the Forex market and your profit and loss?
So first of all, you need to get enough information about brokers and properly research the types of brokers and choose the right one.
Of course, because the Forex market is global and has a very high trading volume, brokers do the trades by connecting to the global market and are controlled by foreign-accredited financial regulatory bodies; Therefore, this market is one of the safest markets available.
We said earlier that you need to have a broker to get started. To choose a broker, pay attention to the following points:
-Considering the sanctions that have been imposed on our country Iran, the broker you choose must be registered in offshore countries in order to be able to serve Iranian users.
-The more branches a broker has in more countries, the more credibility it will have.
-It is better for the broker to have support in Persian language so that he can communicate with you more easily.
-The broker must be regulated and its trades must be connected to the global market.
-Before choosing a broker, you need to have enough information about the spread of the currency pair in that broker.
-The broker needs to have different trading accounts. In this way, you can create a new account with any kind of strategy and capital management.
In this way, by considering these points, you can choose your broker much smarter.
Concluding remarks on the Forex market.
If you are looking to invest in a market that has high trading potential, the Forex market with its high average trading volume can be a good option, but you should note that entering this market without the necessary training is risky. It comes with a lot and can cause you irreparable damage.
Therefore, we recommend that you try to participate in the relevant training courses before any action and get a convincing answer to every question you have in mind, and enter this large global market with full knowledge of the intricacies of work.
In this article, we tried to provide you with important points related to the Forex market. We hope that what has been said has been taken into consideration and your satisfaction, dear ones.